Home / Questions / Investment in portfolio A has a standard deviation of 9%, whileinvestment in portfolio B h
Investment in portfolio A has a standard deviation of 9%, whileinvestment in portfolio B has a standard deviation of 14%. In orderto tolerate the increased risk, what would you as an investorexpect?
a. A higher expected return for portfolio A.
b. A higher expected return for portfolio B.
c. An equal return for either portfolio A or portfolio B.
d. Avoidance of portfolio B.
The required rate of return for an investment can be calculatedfrom the capital asset pricing model as follows:
|
a. |
Use only the return on 3-month Treasury bills to determine therequired return. |
|
b. |
Use the beta of the investment to determine the requiredreturn. |
|
c. |
Use the risk-free rate, plus the investment’s beta times apremium for systematic risk. |
|
d. |
Use the risk-free rate, plus the investment’s beta times apremium for diversifiable risk. |
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