1-

Your portfolio has 20% invested in stock A and 80% invested in stock B. Stock A has an expected return of 10% and a volatility of 15%. Stock B has an expected return of 12% and volatility of 25%. The correlation between stock A and B is 0.3. What is the variance of your portfolio return?

0.0385

0.0587

0.0257

0.0445

2-

You are considering investing $1,000 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 5% and a risky portfolio, P, constructed with two risky securities, X and Y. The optimal weights of X and Y in P are 60% and 40%, respectively. X has a return volatility of 25%, and Y has a return volatility of 30%. The correlation between X and Y is -0.2. If you decide to hold a complete portfolio that has a return volatility of 15%, how much should you invest in the Treasury bills?

$220

$130

$687

$1,000

3-

Which of the following is best described as unique/firm-specific risk?

rising inflation

rising interest rates

CEO sudden death

global warming