Exhibit 6-5
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)

question 52

Multiple Choice

Exhibit 6-5
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $\begin{array}{c}\begin{array}{cc}\text { Asset }(\mathrm{A}) & \text { Asset }(\mathrm{B}) \\\hline \mathrm{E}\left(\mathrm{R}_{\mathrm{A}}\right) =8 \% & \mathrm{E}\left(\mathrm{R}_{\mathrm{B}}\right) =15 \% \\\left(\sigma_{\mathrm{A}}\right) =7 \% & \left(\sigma_{\mathrm{B}}\right) =10 \% \\\mathrm{~W}_{\mathrm{A}}=0.4 & \mathrm{~W}_{\mathrm{B}}=0.6\end{array}\\\mathrm{COV}_{\mathrm{AB}}=0.0006\end{array}$
-Refer to Exhibit 6-5. What is the expected return of a portfolio of two risky assets if the expected return E(R_i) , standard deviation (?_i) , covariance (COV_i,j) , and asset weight (W_i) are as shown above?

• A) 8.0%
• B) 12.2%
• C) 7.4%
• D) 9.1%
• E) 11.6%

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Definitions:

Price Ceiling

A government-imposed limit on how high a price can be charged for a product, service, or resource, usually intended to protect consumers from prices deemed excessively high.

External Benefits

Benefits derived from a product or service that affect parties who did not choose to incur that benefit.

Efficient Level

The optimal point of operation where resources are used in such a way that maximizes productivity and minimizes waste.

Negative Externality

A cost that is suffered by a third party due to an economic transaction, where the cost is not reflected in the transaction's final price.