Assume an economy in which there are three securities: Stock A with r_A = 10% and $\sigma$_A = 10%; Stock B with r_B = 15% and $\sigma$_B = 20%; and a riskless asset with r_RF = 7%.Stocks A and B are uncorrelated (r_AB = 0).Which of the following statements is most CORRECT? A) The expected return on the investor's portfolio will probably have an expected return that is somewhat below 10% and a standard deviation (SD) of approximately 10%. B) The expected return on the investor's portfolio will probably have an expected return that is somewhat below 15% and a standard deviation (SD) that is between 10% and 20%. C) The investor's risk/return indifference curve will be tangent to the CML at a point where the expected return is in the range of 7% to 10%. D) Since the two stocks have a zero correlation coefficient, the investor can form a riskless portfolio whose expected return is in the range of 10% to 15%. E) The expected return on the investor's portfolio will probably have an expected return that is somewhat above 15% and a standard deviation (SD) of approximately 20%.

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11ea42d0_c0ab_d9bc_9abf_09661921e930_TB2090_00 $\begin{array}{cc} \text { Percent A } & \text { Percent B } & \frac{r_{p}}{} & \underline{ \sigma}_{p} \ 100 & 0&10.00 \% & 10.00 \% \ 75 & 25& 11.25 & 9.01 \ 50 & 50& 12.50 & 11.18\ 25 & 75&13.75 & 15.20\ 0&100& 1500 & 20.00 \end{array}$ r_p = xr_A + (1 F1F1F1S1?F1F1F10 x)r_B.. $\sigma _ { F } = \sqrt { \mathrm { x } ^ { 2 } \sigma _ { A } ^ { 2 } + ( 1 - \mathrm { x } ) ^ { 2 } \sigma _ { \mathrm { B } } ^ { 2 } + 3 \mathrm { x } ( 1 - \overline { \mathrm { s } } ) , \rho _ { \mathrm { AB } } \sigma _ { \mathrm { A } } \sigma _ { \mathrm { B } } }$ But F1F1F1S1?F1F1F10_AB = 0,so, . $\sigma _ { g } = \sqrt { x ^ { 2 } d _ { A } ^ { 2 } + ( 1 - x ) ^ { 2 } \sigma _ { B } ^ { 2 } }$ For our investor,r_p = 14.75% and $\sigma$_p = 14.25%.

Assume an Economy in Which There Are Three Securities: Stock σ\sigmaσ

Assume an Economy in Which There Are Three Securities: Stock $\sigma$