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Suppose Rosa is choosing how to allocate her portfolio between two asset classes: risk-free government bonds and a risky group of diversified stocks. The following table shows the risk and return associated with different combinations of stocks and bonds. Combination A B с D E Fraction of Portfolio in Diversified Stocks (Percent) 0 25 50 75 100 B Average Annual Return (Percent) 3.50 6.50 9.50 12.50 15.50 Standard Deviation of Portfolio Return (Risk) (Percent) 0 5 10 15 20 If Rosa reduces her portfolio's exposure to risk by opting for a smaller share of stocks, she must also accept a Suppose Rosa currently allocates 25% of her portfolio to a diversified group of stocks and 75% of her portfolio higher e bonds; that is, she chooses combination B. She wants to increase the average annual return on her portfolio from 6.5% to 12.5%. In orde lower following? Check all that apply. she must do which of the Sell some of her bonds and use the proceeds to purchase stocks Sell some of her stocks and place the proceeds in a savings account Sell some of her stocks and use the proceeds to purchase bonds Accept more risk average annual return.

Suppose Rosa is choosing how to allocate her portfolio between two asset classes: risk-free government bonds and a risky group of diversified stocks. The following table shows the risk and return associated with different combinations of stocks and bonds. Combination A B с D E Fraction of Portfolio in Diversified Stocks (Percent) 0 25 50 75 100 B Average Annual Return (Percent) 3.50 6.50 9.50 12.50 15.50 Standard Deviation of Portfolio Return (Risk) (Percent) 0 5 10 15 20 If Rosa reduces her portfolio's exposure to risk by opting for a smaller share of stocks, she must also accept a Suppose Rosa currently allocates 25% of her portfolio to a diversified group of stocks and 75% of her portfolio higher e bonds; that is, she chooses combination B. She wants to increase the average annual return on her portfolio from 6.5% to 12.5%. In orde lower following? Check all that apply. she must do which of the Sell some of her bonds and use the proceeds to purchase stocks Sell some of her stocks and place the proceeds in a savings account Sell some of her stocks and use the proceeds to purchase bonds Accept more risk average annual return.

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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7. Risk and return Suppose Rosa is choosing how to allocate her portfolio between two asset classes: risk-free government bonds and a risky group of diversified stocks. The following table shows the risk and return associated with different combinations of stocks and bonds. Combination AUDI B Fraction of Portfolio in Diversified Stocks (Percent) 0 25 50 75 100 Average Annual Return (Percent) 3.50 6.50 9.50 12.50 15.50 Standard Deviation of Portfolio Return. (Risk) (Percent) 0 5 10 Sell some of her bonds and use the proceeds to purchase stocks Sell some of her stocks and place the proceeds in a savings account Sell some of her stocks and use the proceeds to purchase bonds Accept more risk 15 20 If Rosa reduces her portfolio's exposure to risk by opting for a smaller share of stocks, she must also accept a higher Suppose Rosa currently allocates 25% of her portfolio to a diversified group of stocks and 75% of her portfolio combination B. She wants to increase the average annual return on her portfolio from 6.5% to 12.5%. In orde lower following? Check all that apply. ishla arche average annual return. ee bonds; that is, she chooses. she must do which of the staur
Transcribed Image Text:7. Risk and return Suppose Rosa is choosing how to allocate her portfolio between two asset classes: risk-free government bonds and a risky group of diversified stocks. The following table shows the risk and return associated with different combinations of stocks and bonds. Combination AUDI B Fraction of Portfolio in Diversified Stocks (Percent) 0 25 50 75 100 Average Annual Return (Percent) 3.50 6.50 9.50 12.50 15.50 Standard Deviation of Portfolio Return. (Risk) (Percent) 0 5 10 Sell some of her bonds and use the proceeds to purchase stocks Sell some of her stocks and place the proceeds in a savings account Sell some of her stocks and use the proceeds to purchase bonds Accept more risk 15 20 If Rosa reduces her portfolio's exposure to risk by opting for a smaller share of stocks, she must also accept a higher Suppose Rosa currently allocates 25% of her portfolio to a diversified group of stocks and 75% of her portfolio combination B. She wants to increase the average annual return on her portfolio from 6.5% to 12.5%. In orde lower following? Check all that apply. ishla arche average annual return. ee bonds; that is, she chooses. she must do which of the staur
Homework (Ch 27) C D E 50 75 100 9.50 12.50 15.50 10 15 20 Sell some of her bonds and use the proceeds to purchase stocks Sell some of her stocks and place the proceeds in a savings account Sell some of her stocks and use the proceeds to purchase bonds Accept more risk average annual return. If Rosa reduces her portfolio's exposure to risk by opting for a smaller share of stocks, she must also accept a Suppose Rosa currently allocates 25% of her portfolio to a diversified group of stocks and 75% of her portfolio to risk-free bonds; that is, she chooses combination B. She wants to increase the average annual return on her portfolio from 6.5% to 12.5%. In order to do so, she must do which of the following? Check all that apply. The table uses the standard deviation of the portfolio's return as a measure of risk. A normal random variable, such as a portfolio's return, stays within two standard deviations of its average approximately 95% of the time. Suppose Rosa modifies her portfolio to contain 50% diversified stocks and 50% risk-free government bonds; that is, she chooses combination C. The average annual return for this type of portfolio is 9.5%, but given the standard deviation of 10%, the returns will typically (about 95% of the time) to a loss of vary from a gain of If Rosa reduces her portfolio's exposure to risk by opting for a smaller share of stocks, she must also accept a Suppose Rosa currently allocates 25% of her portfolio to a diversified group of stocks and 75% of her portfolio to risk-free bonds; that is, she chooses combination B. She wants to increase the average annual return on her portfolio from 6.5% to 12.5%. In order to do so, she must do which of the following? Check all that apply. Sell some of her bonds and use the proceeds to purchase stocks Sell some of her stocks and place the proceeds in a savings account Sell some of her stocks and use the proceeds to purchase bonds Accept more risk The table uses the s within two standard Suppose Rosa modi average annual retul vary from a gain of -10.5% 1.9% 19.5% average annual return. 29.5% eviation of the portfolio's return as a measure of risk. A normal random variable, such as a portfolio's return, stays of its average approximately 95% of the time. rtfolio to contain 50% diversified stocks and 50% risk-free government bonds; that is, she chooses combination C. The type of portfolio is 9.5%, but given the standard deviation of 10%, the returns will typically (about 95% of the time) to a loss of
Transcribed Image Text:Homework (Ch 27) C D E 50 75 100 9.50 12.50 15.50 10 15 20 Sell some of her bonds and use the proceeds to purchase stocks Sell some of her stocks and place the proceeds in a savings account Sell some of her stocks and use the proceeds to purchase bonds Accept more risk average annual return. If Rosa reduces her portfolio's exposure to risk by opting for a smaller share of stocks, she must also accept a Suppose Rosa currently allocates 25% of her portfolio to a diversified group of stocks and 75% of her portfolio to risk-free bonds; that is, she chooses combination B. She wants to increase the average annual return on her portfolio from 6.5% to 12.5%. In order to do so, she must do which of the following? Check all that apply. The table uses the standard deviation of the portfolio's return as a measure of risk. A normal random variable, such as a portfolio's return, stays within two standard deviations of its average approximately 95% of the time. Suppose Rosa modifies her portfolio to contain 50% diversified stocks and 50% risk-free government bonds; that is, she chooses combination C. The average annual return for this type of portfolio is 9.5%, but given the standard deviation of 10%, the returns will typically (about 95% of the time) to a loss of vary from a gain of If Rosa reduces her portfolio's exposure to risk by opting for a smaller share of stocks, she must also accept a Suppose Rosa currently allocates 25% of her portfolio to a diversified group of stocks and 75% of her portfolio to risk-free bonds; that is, she chooses combination B. She wants to increase the average annual return on her portfolio from 6.5% to 12.5%. In order to do so, she must do which of the following? Check all that apply. Sell some of her bonds and use the proceeds to purchase stocks Sell some of her stocks and place the proceeds in a savings account Sell some of her stocks and use the proceeds to purchase bonds Accept more risk The table uses the s within two standard Suppose Rosa modi average annual retul vary from a gain of -10.5% 1.9% 19.5% average annual return. 29.5% eviation of the portfolio's return as a measure of risk. A normal random variable, such as a portfolio's return, stays of its average approximately 95% of the time. rtfolio to contain 50% diversified stocks and 50% risk-free government bonds; that is, she chooses combination C. The type of portfolio is 9.5%, but given the standard deviation of 10%, the returns will typically (about 95% of the time) to a loss of
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