10 An investor invests 40% of his wealth in a risky asset with an expected rate of return of 15% and a variance of 4%, and 60% in a treasury bill (risk-free asset) that pays a rate of 6% H portfolio's expected rate of return and standard deviation areand respectively a. 9.6%,8% b. 9.6%, 10% C. 11.4%,12% d. 11.4%,16% 11. You have $1000 available to invest. The risk-free rate as well as your borrowing r ate is 3%. ie return and standard deviation on the risky portfolio is 6% and 10%. If you wish to construct a portfolio with 8% standard deviation, you should a. borrow $250 at risk free rate and invest $1250 in the risky portfolio b. borrow S750 at risk free rate and invest $1750 in the risky por c. invest $750 in the risk-free asset and $250 in the risky portfolio d. invest $200 in the risk-free asset and $800 in the risky portfolio 12. In a world with risk free asset and risky assets, an investor's degree of risk aversion will a. b. c. d. risky portfolio choice risk-free rate mix of risk-free asset and optimal risky asset portfolio efficient frontier of risky asset portfolio 13 Consider the CAPM The expected return on the market is 18%. The expected return on a stock with a beta of 1.2 is 20%, what is the risk-free rate? a. 6% b. 8% c. 12% d. 16% 14. According to CAPM, what will happen to the price of a stock if investors determine that it plots above the SML? a. Increase b. Decrease c. Do not change d. Do not have enough information 15. The slope of security market line (SML) is: a. Beta b. Market risk premiunm c. Sharpe ratio of the tangency portfolio d. Market risk premium divided by market portfolio's standard deviation