Use the following information, which describes the expected return and standard deviation for three different assets, to answer the following question(s).
Portfolio X Portfolio Y Portfolio Z
Expected return 9.5% 8.8% 9.5%
Standard deviation 4.9% 5.5% 5.5%
If an investor must choose between investing in either portfolio X or portfolio Y, then
A) she will always choose Asset X over Asset Y.
B) she will always choose Asset Y over Asset X.
C) she will be indifferent between investing in Asset X and Asset Y.
D) none of the above.
An investor will get maximum risk reduction by combining assets that are
A) negatively correlated.
B) positively correlated.
C) uncorrelated.
D) perfectly, positively correlated.
A negative coefficient of correlation implies that
A) on average, returns to such assets are negative.
B) asset returns tend to move in opposite directions.
C) asset return tend to move in opposite directions.
D) None of the above because the coefficient of correlation cannot be negative.
What is the expected rate of return on a portfolio 18% of which is invested in an S&P 500 Index fund, 65% in a technology fund, and 17% in Treasury Bills. The expected rate of return is 11% on the S&P Index fund, 14% on the technology fund and 2% on the Treasury Bills.
A) 10.25%
B) 8.33%
C) 11.42%
D) 9.00%
What is the expected rate of return on a portfolio Which consists of $9,000 invested in an S&P 500 Index fund, $32,500 in a technology fund, and $8,500 in Treasury Bills. The expected rate of return is 11% on the S&P Index fund, 14% on the technology fund and 2% on the Treasury Bills.
A) $154.00
B) $142.80
C) $65.00
D) $15.12
