Answwr of Quiz 5 (MBA)
Answwr of Quiz 5 (MBA)
Answwr of Quiz 5 (MBA)
8. Two assets have the following expected returns and standard deviations when the risk-free rate
is 5%:
An investor with a risk aversion of A = 3 would find that _________________ on a risk return
basis.
A. only Asset A is acceptable
B. only Asset B is acceptable
C. neither Asset A nor Asset B is acceptable
D. both Asset A and Asset B are acceptable
9. Consider a treasury bill with a rate of return of 5% and the following risky securities:
Security A: E(r) = .15; variance = .0400
Security B: E(r) = .10; variance = .0225
Security C: E(r) = .12; variance = .1000
Security D: E(r) = .13; variance = .0625
The investor must develop a complete portfolio by combining the risk-free asset with one of the
securities mentioned above. The security the investor should choose as part of his complete
portfolio to achieve the best CAL would be _________.
A. security A
B. security B
C. security C
D. security D