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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 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.

Abhinav 04-Dec-2019

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