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

You are given the following probability distribution for the holding-period return for KMP share:

State of the economy	Probability	Return
Boom Normal growth Recession	0.30 0.50 0.20	18% 12% -5%

What is the expected standard deviation for KMP share?

a.

10.40%

b.

8.55%

c.

8.13%

d.

None of the other options

e.

11.90%

What is the equation of Emma's capital allocation line (CAL)?

a.

E(r_C) = 0.15 + (1.1412 Standard Deviation of C)

b.

E(r_C) = 0.20 + (1.167 Standard Deviation of C)

c.

E(r_C) = 0.03 + (1.514 Standard Deviation of C)

d.

E(r_C) = 0.03 + (1.412 Standard Deviation of C)

e.

E(r_C) = 0.085 + (1.121 Standard Deviation of C)

Clear my choice