Assume There Is a Fixed Exchange Rate Between the Euro

question 34

Multiple Choice

Assume there is a fixed exchange rate between the Euro and U.S. dollar. The expected return and standard deviation of return on the U.S. stock market are 16% and 13%, respectively. The expected return and standard deviation on the DAX stock market are 11% and 18%, respectively. The covariance of returns between the U.S. and German stock market is 1.5%.
If you invested 50% of your money in the German (DAX) stock market and 50% in the U.S. stock market, the expected return on your portfolio would be

• A) 12.0%.
• B) 12.5%.
• C) 13.0%.
• D) 13.5%.

---

Definitions:

Hexane

A hydrocarbon compound with six carbon atoms and 14 hydrogen atoms, often used as a non-polar solvent.

Polarity

The property of having distinct and opposite charges or magnetic poles, leading to a molecule having regions with slightly positive and slightly negative charges.

Benzene

A colorless, volatile liquid hydrocarbon with a distinctive sweet smell, C6H6, used as a solvent and in the manufacture of various chemicals.

Hexane

A hydrocarbon with the chemical formula C6H14, used as a solvent in industrial applications, including the extraction of oils and fats.