8. Risk and return Suppose Alyssa is choosing how to allocate her portfolio between two asset classes: risk-free government bonds and a risky group of diversified stocks. The following table shows the risk and return associated with different combinations of stocks and bonds. Fraction of Portfolio in Diversified Average Annual Stocks Return Combination (Percent) (Percent) Standard Deviation of Portfolio Return (Risk) (Percent) A 2.50 0 B 25 6.00 5 C 50 9.50 10 D 75 E 100 13.00 16.50 15 20 If Alyssa reduces her portfolio's exposure to risk by opting for a smaller share of stocks, she must also accept a verage annual return. Suppose Alyssa currently allocates 25% of her portfolio to a diversified group of stocks and 75% of her portfolio higher ee bonds; that is, she chooses combination B. She wants to increase the average annual return on her portfolio from 6% to 13%. In o lower so she must do which of the following Check all that apply. Sell some of her bonds and use the proceeds to purchase stocks Sell some of her stocks and use the proceeds to purchase bonds Sell some of her stocks and place the proceeds in a savings account Accept more risk The table and deviation of the notfalia's -17% The table uses the s within two standard 3.9% 28% Suppose Alyssa mo average annual retu vary from a gain of 43% deviation of the portfolio's return as a measure of risk. A normal random variable, such as a portfolio's return, stays ns of its average approximately 95% of the time. portfolio to contain 75% diversified stocks and 25% risk-free government bonds; that is, she chooses combination D. The his type of portfolio is 13%, but given the standard deviation of 15%, the returns will typically (about 95% of the time) to a loss of -17% The table uses the standard deviation within two standard deviations of its a -2% ortfolio's return as a measure of risk. A normal random variable, such as a portfolio's return, stays approximately 95% of the time. Suppose Alyssa modifies her portfolio average annual return for this type of vary from a gain of to a loss of 3.9% 43% in 75% diversified stocks and 25% risk-free government bonds; that is, she chooses combination D. The is 13%, but given the standard deviation of 15%, the returns will typically (about 95% of the time)