Assume There Is a Fixed Exchange Rate Between the Canadian

question 14

Multiple Choice

Assume there is a fixed exchange rate between the Canadian and U.S. dollar. The expected return and standard deviation of return on the U.S. stock market are 18% and 15%, respectively. The expected return and standard deviation on the Canadian stock market are 13% and 20%, respectively. The covariance of returns between the U.S. and Canadian stock markets is 1.5%. If you invested 50% of your money in the Canadian 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) 15.5%.

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