Portfolio a Has an Expected Return of 16% with a Standard

question 3

Multiple Choice

Portfolio A has an expected return of 16% with a standard deviation of 8%. Portfolio B has an expected return of 12% with a standard deviation of 7%.

• A) Portfolio A has a lower risk/return.
• B) Portfolio B has a larger expected terminal wealth.
• C) The portfolios have the same risk/return.
• D) Portfolio B has a more certain return.

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Definitions:

Lump Sum Payment

A single payment made at a particular time, as opposed to multiple payments over time, often used in contexts like settlements or pensions.

Labor Income

Earnings derived from work or employment, including wages, salaries, commissions, and bonuses.

Budget Line

A graphical depiction in economics that shows all possible combinations of two goods that can be purchased with a fixed amount of income.

Tax Rate

The percentage at which an individual or corporation is taxed.