EXAM 2 finance hw questions (HW 10 to 18)

In the context of the capital asset pricing model, the systematic measure of risk is best captured by __________blank.

Multiple Choice

• unique risk

• beta

• the standard deviation of returns

• the variance of returns

Beta

In a well-diversified portfolio, __________blank risk is negligible.

Multiple Choice

• nondiversifiable

• market

• systematic

• unsystematic

unsystematic

The capital asset pricing model was developed by __________blank.

Multiple Choice

• Kenneth French

• Stephen Ross

• William Sharpe

• Eugene Fama

William Sharpe

If all investors become more risk averse, the SML will __________blank and stock prices will __________blank.

Multiple Choice

• shift upward; rise

• shift downward; fall

• have the same intercept with a steeper slope; fall

• have the same intercept with a flatter slope; rise

have the same intercept with a steeper slope; fall

According to the capital asset pricing model, a security with a __________blank.

Multiple Choice

• negative alpha is considered a good buy

• positive alpha is considered overpriced

• positive alpha is considered underpriced

• zero alpha is considered a good buy

positive alpha is considered underpriced

Investors require a risk premium as compensation for bearing__________

multiple choice

• unsystematic risk

• alpha risk

• residual risk

• systematic risk

systematic risk

The graph of the relationship between expected return and beta in the CAPM context is called the __________blank.

Multiple Choice

• CML

• CAL

• SML

• SCL

SML

aka the security market line

In a world where the CAPM holds, which one of the following is not a true statement regarding the capital market line?

Multiple Choice

• The capital market line always has a positive slope.

• The capital market line is also called the security market line.

• The capital market line is the best-attainable capital allocation line.

• The capital market line is the line from the risk-free rate through the market portfolio.

The capital market line is also called the security market line.

According to the CAPM, the risk premium an investor expects to receive on any stock or portfolio is __________blank.

Multiple Choice

• directly related to the risk aversion of the particular investor

• inversely related to the risk aversion of the particular investor

• directly related to the beta of the stock

• inversely related to the alpha of the stock

directly related to the beta of the stock

According to capital asset pricing theory, the key determinant of portfolio returns is __________blank.

Multiple Choice

• the degree of diversification

• the systematic risk of the portfolio

• the firm-specific risk of the portfolio

• economic factors

the systematic risk of the portfolio

Standard deviation of portfolio returns is a measure of __________blank.

Multiple Choice

• total risk

• relative systematic risk

• relative nonsystematic risk

• relative business risk

total risk

A stock has a beta of 1.3. The systematic risk of this stock is __________blank the stock market as a whole.

Multiple Choice

• higher than

• lower than

• equal to

• indeterminable compared to

higher than

Fama and French claim that after controlling for firm size and the ratio of the firm's book value to market value, the model is:

1. Perfectly significant in predicting future stock returns

2. An improvement over the CAPM regarding the abundance of significant alpha values in the CAPM

3. A good predictor of the firm's specific risk

Multiple Choice

• 1 only

• 2 only

• 1 and 3 only

• 1, 2, and 3

• 2 only

Which of the following variables do Fama and French claim do a better job explaining stock returns than beta?

1. Book-to-market ratio

2. Unexpected change in industrial production

3. Firm size

Multiple Choice

• 1 only

• 1 and 2 only

• 1 and 3 only

• 1, 2, and 3

• 1 and 3 only

Random price movements indicate __________blank.

Multiple Choice

• irrational markets

• that prices cannot equal fundamental values

• that technical analysis to uncover trends can be quite useful

• that markets are functioning efficiently

• that markets are functioning efficiently

When the market risk premium rises, stock prices will __________blank.

Multiple Choice

• rise

• fall

  Correct

• recover

• have excess volatility

fall

What is the difference in returns between the tenth smallest portfolio of stocks and the tenth largest portfolio, from 1926-2022, suggesting a small-firm effect ?

Multiple Choice

• 6.7%

• 2.5%

• − 2.5%

• 0.0%

6.7%

Evidence suggests that there may be __________blankmomentum and __________blank reversal patterns in stock price behavior.

Multiple Choice

• short-run; short-run

• long-run; long-run

• long-run; short-run

• short-run; long-run

• short-run; long-run

_________blank is the return on a stock beyond what would be predicted from market movements alone.

Multiple Choice

• A normal return

• A subliminal return

• An abnormal return

• An excess return

• An abnormal return

Choosing stocks by searching for predictable patterns in stock prices is called __________blank.

Multiple Choice

• fundamental analysis

• technical analysis

• index management

• random walk investing

• technical analysis

Proponents of the EMH think technical analysts __________blank.

Multiple Choice

• should focus on relative strength

• should focus on resistance levels

• should focus on support levels

• are wasting their clients’ time/money

• are wasting their clients’ time/money

"Buy a stock if its price moves up by 2% more than the Dow Average" is an example of a __________blank.

Multiple Choice

• trading rule

• market anomaly

• fundamental approach

• passive trading strategy

• trading rule

When stock returns exhibit positive serial correlation, this means that __________blank returns tend to follow __________blank returns.

Multiple Choice

• positive; positive

• positive; negative

• negative; positive

• positive; zero

• positive; positive

The Fama and French evidence that high book-to-market firms outperform low book-to-market firms even after adjusting for beta means that __________blank.

Multiple Choice

• high book-to-market firms are underpriced or the book-to-market ratio is a proxy for a unique risk factor

• low book-to-market firms are underpriced or the book-to-market ratio is a proxy for a systematic risk factor

• either high book-to-market firms are underpriced or the book-to-market ratio is a proxy for a systematic risk factor

• high book-to-market firms have more post-earnings drift

• either high book-to-market firms are underpriced or the book-to-market ratio is a proxy for a systematic risk factor

The term random walk is used in investments to refer to stock prices __________blank.

Multiple Choice

• changes that are random but predictable

• that respond slowly to both old and new information

• changes that are random and unpredictable

• changes that follow the pattern of past price changes

• changes that are random and unpredictable

Market anomaly refers to __________blank.

Multiple Choice

• an exogenous shock to the market that is sharp but not persistent

• a price or volume event that is inconsistent with historical price or volume trends

• a trading or pricing structure that interferes with efficient buying and selling of securities

• price behavior that differs from the behavior predicted by the efficient market hypothesis

• price behavior that differs from the behavior predicted by the efficient market hypothesis

Value stocks usually exhibit __________blank price-to-book ratios and __________blank price-to-earnings ratios.

Multiple Choice

• low; low

• low; high

• high; low

• high; high

• low; low

Growth stocks usually exhibit ______ price-to-book ratios and ______ price-to-earnings ratios.

Multiple Choice

• low; low

• low; high

• high; low

• high; high

high; high

A technical analyst is most likely to be affiliated with which investment philosophy?

Multiple Choice

• Active management

• Buy and hold

• Passive investment

• Index funds

• Active management

The tendency of poorly performing stocks and well-performing stocks in one period to continue their performance into the next period is called the __________blank.

Multiple Choice

• fad effect

• martingale effect

• momentum effect

• reversal effect

momentum effect

Proponents of the Efficient Market Hypothesis (EMH) typically advocate __________.

Multiple Choice

• a conservative investment strategy

• a liberal investment strategy

• a passive investment strategy

• an aggressive investment strategy

• a passive investment strategy

Which of the following is not a method employed by followers of technical analysis?

Multiple Choice

• Charting

• Relative strength analysis

• Earnings forecasting

• Trading around support and resistance levels

• Earnings forecasting

Which of the following is not a method employed by fundamental analysts?

Multiple Choice

• Analyzing the Fed's next interest rate move

• Relative strength analysis

• Earnings forecasting

• Estimating the economic growth rate

• Relative strength analysis

The primary objective of fundamental analysis is to identify __________blank.

Multiple Choice

• well-run firms

• poorly run firms

• mispriced stocks

• high P/E stocks

• mispriced stocks

You are an investment manager who is currently managing assets worth $6 billion. You believe that active management of your fund could generate an additional one-tenth of 1.00% return on the portfolio. If you want to make sure your active strategy adds value, how much can you spend on security analysis?

Multiple Choice

• Up to $12,000,000

• Up to $6,000,000

• Up to $3,000,000

• $0

• Up to $6,000,000

A mutual fund that attempts to hold quantities of shares in proportion to their representation in the market is called an __________blank fund.

Multiple Choice

• stock

• index

• hedge

• money market

• index

Even if the markets are efficient, professional portfolio management is still important because it provides investors with:

1. Low-cost diversification

2. A portfolio with a specified risk level

3. Better risk-adjusted returns than an index

Multiple Choice

• 1 only

• 1 and 2 only

• 2 and 3 only

• 1, 2, and 3

• 1 and 2 only

Assume that a company announces unexpectedly high earnings in a particular quarter. In an efficient market one might expect __________blank.

Multiple Choice

• an abnormal price change immediately after the announcement

• an abnormal price increase before the announcement

• an abnormal price decrease after the announcement

• no abnormal price change before or after the announcement

• an abnormal price change immediately after the announcemen

Which of the following would violate the efficient market hypothesis?

Multiple Choice

• Intel has consistently generated large profits for years.

• Prices for stocks before stock splits show, on average, consistently positive abnormal returns.

• Investors earn abnormal returns months after a firm announces surprise earnings.

• High-earnings growth stocks fail to generate higher returns for investors than do low earnings growth stocks.

• Investors earn abnormal returns months after a firm announces surprise earnings.

One type of passive portfolio management is investing __________blank.

Multiple Choice

• in a well-diversified portfolio without attempting to search out mispriced securities

• in a well-diversified portfolio while only seeking out passively mispriced securities

• an equal dollar amount in index stocks

• in an equal amount of shares in each of the index stocks

• in a well-diversified portfolio without attempting to search out mispriced securities

Someone who invests in the Vanguard Index 500 mutual fund could most accurately be described as using which approach?

Multiple Choice

• Active management

• Arbitrage

• Fundamental analysis

• Passive investment

• Passive investment

in an efficient market and for an investor who believes in a passive approach to investing, what is the primary duty of a portfolio manager?

Multiple Choice

• Accounting for results

• Diversification

• Identifying undervalued stocks

• No need for a portfolio manager

• Diversification

Models of financial markets that emphasize psychological factors affecting investor behavior are called __________blank.

Multiple Choice

• data mining

• fundamental analysis

• charting

• behavioral finance

• behavioral finance

Behaviorists point out that even if market prices are __________blank, there may be __________blank.

Multiple Choice

• distorted; limited arbitrage opportunities

• distorted; fundamental efficiency

• allocationally efficient; limitless arbitrage opportunities

• distorted; allocational efficiency

• distorted; limited arbitrage opportunities

Conventional finance theory assumes investors are __________blank, and behavioral finance assumes some systematic __________blank.

Multiple Choice

• rational; irrationality

• irrational; rationality

• greedy; philanthropic behavior

• philanthropic; irrationality

• rational; irrationality

Behavioral patterns persist in prices if __________blank.

Multiple Choice

• markets are weak-form efficient

• there are limits to arbitrage activity

• there are no significant trading costs

• market psychology is inconsistent over time

• there are limits to arbitrage activity

Even though indexing is growing in popularity, only about __________blank of equity in the mutual fund industry is held in indexed funds. This may be a sign that investors and managers __________blank.

Multiple Choice

• 15%; are excessively conservative

• 30%; overestimate their ability

• 15%; suffer from framing biases

• 30%; engage in mental accounting

• 30%; overestimate their ability

if investors are too slow to update their beliefs about a stock's future performance when new evidence arises, they are exhibiting __________blank.

Multiple Choice

• representativeness bias

• framing error

• conservatism

• memory bias

• conservatism

f investors overweight recent performance in forecasting the future, they are exhibiting __________blank.

Multiple Choice

• representativeness bias

• framing error

• memory bias

• overconfidence

• representativeness bias

Trading activity and average returns in brokerage accounts tend to be __________blank.

Multiple Choice

• uncorrelated

• negatively correlated

• positively correlated

• positively correlated for women and negatively correlated for men

• negatively correlated

An investor holds a very conservative portfolio invested for retirement, but she takes some extra cash she earned from her year-end bonus and buys gold futures. She appears to be engaging in __________blank.

Multiple Choice

• overconfidence

• representativeness

• forecast errors

• mental accounting

• mental accounting

An investor needs cash to pay some hospital bills. He is willing to use his dividend income to pay the bills, but he will not sell any stock to do so. He is engaging in __________blank.

Multiple Choice

• overconfidence

• representativeness

• forecast errors

• mental accounting

• mental accounting

_________blank is a tool that can help identify the direction of a stock's price.

Multiple Choice

• Prospect theory

• Framing

• A moving average

• Conservatism

• A moving average

A possible limit on arbitrage activity that may allow behavioral biases to persist is __________blank.

Multiple Choice

• technical trends in prices

• momentum effects

• fundamental risk

• trend reversals

• fundamental risk

A major problem with technical trading strategies is that __________blank.

Multiple Choice

• it is very difficult to identify a true trend before the fact

• it is very difficult to identify the correct trend after the fact

• it is so easy to identify trends that all investors quickly do so

• Kondratieff showed that you can't identify trends without 48 to 60 years of data

• it is very difficult to identify a true trend before the fact

Jill Davis tells her broker that she does not want to sell her stocks that are below the price she paid for them. She believes that if she just holds on to them a little longer, they will recover, at which time she will sell them. What behavioral characteristic does Davis display?

multiple choice

• Loss aversion

• Conservatism

• Disposition effect

• Disposition effect

After Polly Shrum sells a stock, she avoids following it in the media. She is afraid that it may subsequently increase in price. What behavioral characteristic does Shrum have as the basis for her decision making?

multiple choice

• Mental accounting

• Fear of regret

• Representativeness

• Fear of regret

All of the following actions are consistent with feelings of regret except:

multiple choice

• Selling losers quickly.

• Holding on to losers too long.

• Hiring a full-service broker.

• Selling losers quickly.

Which one of the following would be a bullish signal to a technical analyst using moving average rules?

multiple choice

• The stock's moving average is decreasing.

• A stock price crosses above its 52-week moving average.

• A stock price crosses below its 52-week moving average.

• The stock's moving average is increasing.

• A stock price crosses above its 52-week moving average.

Rank the following from highest average historical return to lowest average historical return from 1927 to 2018.

1. Small/Value stocks

2. Small/Growth stocks

3. Big/Value stocks

4. Big/Growth stocks

1,3,2,4

Rank the following from highest average historical standard deviation to lowest average historical standard deviation from 1927 to 2018.

1. Small/Value stocks

2. Small/Growth stocks

3. Big/Value stocks

4. Big/Growth stocks

1,2,3,4

The market risk premium is best approximated by the __________blank.

Multiple Choice

• difference between the return on an index fund and the return on Treasury bills

• difference between the return on a small-firm mutual fund and the return on the Standard & Poor's 500 Index

• difference between the return on the risky asset with the lowest returns and the return on Treasury bills

• difference between the return on the highest-yielding asset and the return on the lowest-yielding asset

• difference between the return on an index fund and the return on Treasury bills

The rate of return on __________blank is known at the beginning of the holding period, while the rate of return on __________blank is not known until the end of the holding period.

Multiple Choice

• risky assets; Treasury bills

• Treasury bills; risky assets

• excess returns; risky assets

• index assets; bonds

• Treasury bills; risky assets

Your investment has a 20% chance of earning a 30% rate of return, a 50% chance of earning a 10% rate of return, and a 30% chance of losing 6%. What is your expected return on this investment?

Multiple Choice

• 12.80%

• 11.00%

• 8.90%

• 9.20% 

• 9.20% 

Both investors and gamblers take on risk. The difference between an investor and a gambler is that an investor __________blank.

Multiple Choice

• is normally risk neutral

• requires a risk premium to take on the risk

• knows he or she will not lose money

• knows the outcomes at the beginning of the holding period

• requires a risk premium to take on the risk

n calculating the variance of a portfolio's returns, squaring the deviations from the mean results in:

1. Preventing the sum of the deviations from always equaling zero

2. Exaggerating the effects of large positive and negative deviations

3. A number for which the unit is percentage of return

Multiple Choice

• 1 only

• 1 and 2 only

• 1 and 3 only

• 1, 2, and 3

• 1 and 2 only

One method of forecasting the risk premium is to use the __________blank.

Multiple Choice

• coefficient of variation of analysts' earnings forecasts

• variations in the risk-free rate over time

• average historical excess returns for the asset under consideration

• average abnormal return on the index portfolio

• average historical excess returns for the asset under consideration

The formula E(rP)−rf/σP is used to calculate the __________blank.

Multiple Choice

• Sharpe ratio

• Treynor measure

• coefficient of variation

• real rate of return

• Sharpe ratio

A portfolio with a 25% standard deviation generated a return of 15% last year when T-bills were paying 4.5%. This portfolio had a Sharpe ratio of __________blank.

Multiple Choice

• 0.22

• 0.60

• 0.42

• 0.25

• 0.42

A security with normally distributed returns has an annual expected return of 18% and standard deviation of 23%. The probability of getting a return between −28% and 64% in any one year is __________blank.

Multiple Choice

• 68.26%

• 95.44%

• 99.74%

• 100.00%

• 95.44%

The normal distribution is completely described by its __________blank.

Multiple Choice

• mean and standard deviation

• mean

• mode and standard deviation

• median and variance

• mean and standard deviation

he complete portfolio refers to the investment in the __________blank.

Multiple Choice

• risk-free asset

• risky portfolio

• risk-free asset and the risky portfolio combined

• risky portfolio and the index

• risk-free asset and the risky portfolio combined

The reward-to-volatility ratio is given by the __________.

Multiple Choice

• slope of the capital allocation line

• second derivative of the capital allocation line

• point at which the second derivative of the investor's indifference curve reaches zero

• portfolio's excess return

• slope of the capital allocation line

In the mean standard deviation graph, the line that connects the risk-free rate and the optimal risky portfolio, P, is called the __________blank.

Multiple Choice

• capital allocation line

• indifference curve

• investor's utility line

• security market line

• capital allocation line

The formula E(rP)−rf / σP is used to calculate the __________blank.

Multiple Choice

• Sharpe ratio

• Treynor measure

• coefficient of variation

• real rate of return

• Sharpe ratio

Consider a Treasury bill with a rate of return of 5% and the following risky securities:

Security A: E(r) = 0.15; variance = 0.0400

Security B: E(r) = 0.10; variance = 0.0225

Security C: E(r) = 0.12; variance = 0.1000

Security D: E(r) = 0.13; variance = 0.0625

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 her complete portfolio to achieve the best CAL would be __________blank.

Multiple Choice

• Security A

• Security B

• Security C

• Security D 

• Security A

An investor invests 70% of her wealth in a risky asset with an expected rate of return of 15% and a variance of 5%, and she puts 30% in a Treasury bill that pays 5%. Her portfolio's expected rate of return and standard deviation are __________blank and __________blank respectively.

Multiple Choice

• 10.00%; 6.75%

• 12.00%; 22.40%

• 12.00%; 15.65%

• 10.00%; 35.65%

• 12.00%; 15.65%

You invest $10,000 in a complete portfolio. The complete portfolio is composed of a risky asset with an expected rate of return of 15% and a standard deviation of 21% and a Treasury bill with a rate of return of 5%. How much money should be invested in the risky asset to form a portfolio with an expected return of 11%?

Multiple Choice

• $6,000

• $4,000

• $7,000

• $3,000 

• $6,000

You invest $1,000 in a complete portfolio. The complete portfolio is composed of a risky asset with an expected rate of return of 16% and a standard deviation of 20% and a Treasury bill with a rate of return of 6%. __________blank of your complete portfolio should be invested in the risky portfolio if you want your complete portfolio to have a standard deviation of 9%.

Multiple Choice

• 100%

• 55%

• 45%

• 15% 

• 45%

You invest $1,000 in a complete portfolio. The complete portfolio is composed of a risky asset with an expected rate of return of 16% and a standard deviation of 20% and a Treasury bill with a rate of return of 6%. The slope of the capital allocation line formed with the risky asset and the risk-free asset is approximately __________blank.

Multiple Choice

• 1.04

• 0.80

• 0.50

• 0.25

• 0.50

You have $500,000 available to invest. The risk-free rate, as well as your borrowing rate, is 8%. The return on the risky portfolio is 16%. If you wish to earn a 22% return, you should __________blank.

Multiple Choice

• invest $125,000 in the risk-free asset

• invest $375,000 in the risk-free asset

• borrow $125,000

• borrow $375,000

• borrow $375,000

The return on the risky portfolio is 15%. The risk-free rate, as well as the investor's borrowing rate, is 10%. The standard deviation of return on the risky portfolio is 20%. If the standard deviation on the complete portfolio is 25%, the expected return on the complete portfolio is __________blank.

Multiple Choice

• 6.00%

• 8.75 %

• 10.25%

• 16.25%

• 16.25%

Assume that you manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 27%. The T-bill rate is 7%.

A client prefers to invest in your portfolio a proportion (y) that maximizes the expected return on the overall portfolio subject to the constraint that the overall portfolio's standard deviation will not exceed 20%.

Required:

1. What is the investment proportion, y?

74.07

Assume that you manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 27%. The T-bill rate is 7%.

A client prefers to invest in your portfolio a proportion (y) that maximizes the expected return on the overall portfolio subject to the constraint that the overall portfolio's standard deviation will not exceed 20%.

Required:

What is the expected rate of return on the overall portfolio?

14.41

You manage an equity fund with an expected risk premium of 10% and a standard deviation of 14%. The rate on Treasury bills is 6%. Your client chooses to invest $60,000 of her portfolio in your equity fund and $40,000 in a T-bill money market fund. What are the expected return and standard deviation of your client’s portfolio?

expected return= 12.0%

standard deviation=8.4%

Risk that can be eliminated through diversification is called __________blank risk.

Multiple Choice

• unique

• firm-specific

• diversifiable

• All of these options are correct.

• All of these options are correct.

Many current and retired Enron Corporation employees had their 401k retirement accounts wiped out when Enron collapsed because __________blank.

Multiple Choice

• they had to pay huge fines for obstruction of justice

• their 401k accounts were held outside the company

• their 401k accounts were not well-diversified

• None of these options are correct.

• their 401k accounts were not well-diversified

Asset A has an expected return of 15% and a reward-to-variability ratio of 0.4. Asset B has an expected return of 20% and a reward-to-variability ratio of 0.3. A risk-averse investor would prefer a portfolio using the risk-free asset and __________blank.

Multiple Choice

• asset A

• asset B

• no risky asset

• The answer cannot be determined from the data given.

• asset A

Which of the following statistics cannot be negative?

Multiple Choice

• Covariance

• Variance

• E(r)

• Correlation coefficient

• Variance

sset A has an expected return of 20% and a standard deviation of 25%. The risk-free rate is 10%. What is the reward-to-variability ratio?

Multiple Choice

• 0.40

• 0.50

• 0.75

• 0.80

0.40

The correlation coefficient between two assets equals __________blank.

Multiple Choice

• their covariance divided by the product of their variances

• the product of their variances divided by their covariance

• the sum of their expected returns divided by their covariance

• their covariance divided by the product of their standard deviations

• their covariance divided by the product of their standard deviations

Diversification is most effective when security returns are __________blank.

Multiple Choice

• high

• negatively correlated

• positively correlated

• uncorrelated

• negatively correlated

The expected rate of return of a portfolio of risky securities is the __________blank.

Multiple Choice

• sum of the individual securities' covariance

• sum of the individual securities' variance

• weighted sum of the individual securities' expected returns

• weighted sum of the individual securities' variance

• weighted sum of the individual securities' expected returns

The risk that can be diversified away is __________blank.

Multiple Choice

• beta

• firm-specific risk

• market risk

• systematic risk

• firm-specific risk

Approximately how many securities does it take to diversify almost all of the unique risk from a portfolio?

Multiple Choice

• 2

• 6

• 8

• 20

• 20

Market risk is also called __________blank and __________blank.

Multiple Choice

• systematic risk; diversifiable risk

• systematic risk; nondiversifiable risk

• unique risk; nondiversifiable risk

• unique risk; diversifiable risk

• systematic risk; nondiversifiable risk

Suppose that a stock portfolio and a bond portfolio have a zero correlation. This means that the __________blank.

Multiple Choice

• returns on the stock and bond portfolios tend to move inversely

• returns on the stock and bond portfolios tend to vary independently of each other

• returns on the stock and bond portfolios tend to move together

• covariance of the stock and bond portfolios will be positive

• returns on the stock and bond portfolios tend to vary independently of each other

  Correct

You put half of your money in a stock portfolio that has an expected return of 14% and a standard deviation of 24%. You put the rest of your money in a risky bond portfolio that has an expected return of 6% and a standard deviation of 12%. The stock and bond portfolios have a correlation of 0.55. The standard deviation of the resulting portfolio will be __________blank.

Multiple Choice

• 13.4%

• 18.0%

• 16.1%

  Correct

• 16.7%

• 16.1%