Consider a T-bill with a rate of return of 5 percent and the following risky securities. From which set of portfolios, formed with the T-bill and any one of the 4 risky securities, would a risk averse investor always choose his portfolio? Security A: E(r) = 0.15; Variance = 0.04 Security B: E(r) = 0.10; Variance = 0.0225 Security C: E(r) = 0.12; Variance = 0.01 Security D: E(r) = 0.13; Variance = 0.0625 A) The set of portfolios formed with the T-bill and security A. B) The set of portfolios formed with the T-bill and security B. C) The set of portfolios formed with the T-bill and security C. D) The set of portfolios formed with the T-bill and security D.

Consider a T-bill with a rate of return of 5 percent and the following risky securities. From which set of portfolios, formed with the T-bill and any one of the 4 risky securities, would a risk averse investor always choose his portfolio? Security A: E(r) = 0.15; Variance = 0.04 Security B: E(r) = 0.10; Variance = 0.0225 Security C: E(r) = 0.12; Variance = 0.01 Security D: E(r) = 0.13; Variance = 0.0625 A) The set of portfolios formed with the T-bill and security A. B) The set of portfolios formed with the T-bill and security B. C) The set of portfolios formed with the T-bill and security C. D) The set of portfolios formed with the T-bill and security D.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 6P

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Security A: E(r) = 0.15; Variance = 0.04

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

Security C: E(r) = 0.12; Variance = 0.01

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

A) The set of portfolios formed with the T-bill and security A.

B) The set of portfolios formed with the T-bill and security B.

C) The set of portfolios formed with the T-bill and security C.

D) The set of portfolios formed with the T-bill and security D.

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

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