Equity markets 10 - Answer: B Difficulty: Moderate...

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Chapter 7 Capital Allocation Between the Risky Asset and the Risk-Free Asset 26. What is the standard deviation of Bo's complete portfolio? A) 7.20% B) 5.40% C) 6.92% D) 4.98% E) 5.76% Answer: E Difficulty: Easy Rationale: Std. Dev. of C = .8*7.20% = 5.76% 27. What is the equation of Bo's Capital Allocation Line? A) E(r C ) = 7.2 + 3.6 * Standard Deviation of C B) E(r C ) = 3.6 + 1.167 * Standard Deviation of C C) E(r C ) = 3.6 + 12.0 * Standard Deviation of C D) E(r C ) = 0.2 + 1.167 * Standard Deviation of C E) E(r C ) = 3.6 + 0.857 * Standard Deviation of C
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Unformatted text preview: Answer: B Difficulty: Moderate Rationale: The intercept is the risk-free rate (3.60%) and the slope is (12.00%-3.60%)/7.20% = 1.167. 28. What are the proportions of Stocks A, B, and C, respectively in Bo's complete portfolio? A) 40%, 25%, 35% B) 8%, 5%, 7% C) 32%, 20%, 28% D) 16%, 10%, 14% E) 20%, 12.5%, 17.5% Answer: C Difficulty: Moderate Rationale: Proportion in A = .8 * 40% = 32%; proportion in B = .8 * 25% = 20%; proportion in C = .8 * 35% = 28%. Bodie, Investments, Sixth Edition...
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This note was uploaded on 01/31/2010 for the course ECON 3660DE taught by Professor Patrickmartinandvitalialexeev during the Spring '10 term at University of Guelph.

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