Assume There Is a Fixed Exchange Rate Between the Yen

question 10

Multiple Choice

Assume there is a fixed exchange rate between the Yen and U.S. dollar. The expected return and standard deviation of return on the U.S. stock market are 21% and 15%, respectively. The expected return and standard deviation on the Japanese stock market are 13% and 12%, respectively. The covariance of returns between the U.S. and Japanese stock market is 2.5%.
If you invested 60% of your money in the Japanese stock market and 40% in the U.S. stock market, the expected return on your portfolio would be

• A) 12.0%.
• B) 16.2%.
• C) 17.4%.
• D) 18.5%.

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