Your client, Bo Regard, holds a complete portfolio that consists of a portfolio of risky assets (P) and T-Bills. The information below refers to these assets.

E(Rp)

15.00%

Standard Deviation of P

6.50%

T-Bill rate

3.60%

Proportion of Complete Portfolio in P

75%

Proportion of Complete Portfolio in T-Bills

25%

Composition of P:

Stock A

40.00%

Stock B

25.00%

Stock C

35.00%

Total

100.00%

What is the expected return and standard deviation on Bo's complete portfolio?

Your client, Bo Regard, holds a complete portfolio that consists of a portfolio of risky assets (P) and T-Bills. The information below refers to these assets.

E(Rp)

15.00%

Standard Deviation of P

6.50%

T-Bill rate

3.60%

Proportion of Complete Portfolio in P

75%

Proportion of Complete Portfolio in T-Bills

25%

Composition of P:

Stock A

40.00%

Stock B

25.00%

Stock C

35.00%

Total

100.00%

What is the equation of Bo's capital allocation line?

• When a distribution is negatively skewed,A.standard deviation underestimates unfavorable outcomes.

B.standard deviation correctly estimates the spread of possible outcomes.

• C.standard deviation overestimates unfavorable outcomes.
• D.the tails are fatter than in a normal distribution.

Consider the following probability distribution for stocks A and B:

State

Probability

Return on Stock A

Return on Stock B

1

0.10

10%

8%

2

0.20

13%

7%

3

0.20

12%

6%

4

0.30

14%

9%

5

0.20

15%

8%

Let G be the global minimum variance portfolio. The weights of A and B in G are __________ and __________, respectively.

"The principle of participation states that high levels of risk aversion alone can explain why some investors do not participate in asset markets with positive risk premia." T/F NEED RATIONAL