Question

5 Consider a Treasury bill with a rate of return of 5% and the following risky securities: Security A: E/) = .15; variance = .0400 Security B: En = 10; variance = .0225 Security C: 1) = .12; variance = 1000 Security D: 0) = .13; variance = .0625 The investor must develop a complete portfolio by combining the risk-free asset with one of the securities mentioned above. The security the investor should choose as part of her complete portfolio to achieve the best CAL would be 30-2 Multiple Choice security A security B Oo oo security security D < Prey 25 of 30 11: Sears ancuar

Answer 1

ANSWER:

A B C D E F G H I J K L M First we will compute the Standard Deviation (SD) for each security Next we will compute the Coefficient of Variation (CV) for the security, where Security ER 15% 10% 12% 13% Var 0.04 0.02 0.10 0.06 SD 0.20 0.15 0.32 0.25 CV 1.33 1.50 2.64 1.92 The security having the lowest CV will have the minimum volatility and thus is lowest risky. Investor should choose A security

А D E F G + First we will compute the Standard Deviation (SD) for each security Next we will compute the Coefficient of Variation (CV) for the security, where Security 00E ER Var SD cv 0.15 0.04 =SQRT(E8) =F8/D8 0.1 0.0225 =SQRT(E9) =F9/09 0.12 0.1 =SQRT(E10) =F10/D10 0.13 0.0625 =SQRT(E11) =F11/011 The security having the lowest CV will have the minimum volatility and thus is lowest risky. Investor should choose A security

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