risk and return

Suppose Cho 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.

1st blank options are: higher, lower

2nd blank options are: -13.5%, 1.3 %, 16.5%, 26.5%

3rd blank options are: -13.5%, -3.5%, 1.3%, 26.5%

ppose Cho is choosing how to allocate her portfolio between two asset classes: risk-free government bonds and a risky group of diversifie e following table shows the risk and return associated with different combinations of stocks and bonds. Standard Deviation of Portfolio Return (Risk) (Percent) Average Annual Return (Percent) 2.50 4.50 6.50 8.50 10.50 Fraction of Portfolio in Diversified Stocks (Percent) Combination 25 50 75 100 10 15 20 If Cho reduces her portfolio's exposure to risk by opting for a smaller share of stocks, he must also accept a averageannual return. Suppose Cho currently allocates 75% of her portfolio to a diversified group of stocks and 25% of her portfolio to risk-free bonds; that is, she choc combination D. She wants to reduce the level of risk associated with her portfolio from a standard deviation of 15 to a standard deviation of 5. In order to do so, she must do which of the following? Check all that apply. Sell some of her stocks and use the proceeds to purchase bonds sell some of her bonds and use the proceeds to purchase stocks Accept a lower average annual rate of return Place the entirety of her portfolio in bonds The table uses the standard deviation of the portfolio's return as a measure of risk. A normal random variable, such as a portfolio's return, stays within two standard deviations of its average approximately 95% of the time. Suppose Cho modifies her portfolio to contain 50% diversified stocks and 50% risk-free government bonds; that is, she chooses comb natu n C Tho average annual return for this type of portfolio is 6.5%, but given the standard deviation of 10%, the returns wil typically about 95% of the time