Use the Following Information to Answer Questions 8-9

question 20

Multiple Choice

Use the following information to answer questions 8-9.
An investor is considering a portfolio consisting of 60% invested in Stock X and 40% invested in Stock Y. The expected returns for the stocks are 10% for Stock X and 8% for Stock Y. Variance of the stock returns are 0.04 for Stock X and 0.02 for Stock Y, and a covariance of -0.01 between the two stocks.
-What is the variance of the proposed portfolio?

• A) 0.0128
• B) 0.0152
• C) 0.0224
• D) 0.0272

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Definitions:

Opportunity Cost

Passing up on potential profits from a range of choices when one selection is made.

Decision-making Process

A series of steps taken by an individual or organization to determine the best action to achieve a particular goal.

Efficient Markets

Financial markets where prices fully reflect all available information.

Marginalism

The process of analyzing the additional or incremental costs or benefits arising from a choice or decision.