Consider a T-bill with a rate of return of 5% and the following risky securities:

Security A: E(r) = 0.15; Variance = 0.04 Security B: E(r) = 0.10; Variance = 0.0225 Security C: E(r) = 0.12; Variance = 0.01 Security D: E(r) = 0.13; Variance = 0.0625

From which set of portfolios, formed with the T-bill and any one of the four risky securities, would a risk-averse investor always choose his portfolio?

A. analyzing financial statements.

B. assessing risk tolerance.

C. estimating security betas.

D. determining how much money a client needs to make.

E. identifying market anomalies.

A. 62.5% and 37.5%

B. 75% and 25%

C. cannot be determined

D. 57% and 43%

E. 85% and 15%

A. 2

B. 1

C. 4

D. 3

E. cannot tell from the information given 11.

A. represented by the scaling factor "−.005" in the utility function.

B. the rate that a risk-free investment would need to offer with certainty to be considered equally attractive as the risky portfolio.

C. the rate that equates "A" in the utility function with the average risk aversion coefficient for all risk-averse investors.

D. the minimum rate guaranteed by institutions such as banks.

E. the rate that the investor must earn for certain to give up the use of his money.

A. They only accept risky investments that offer risk premiums over the risk- free rate.

B. They only care about the rate of return and accept investments that are fair games.

C. They only care about the rate of return.

D. They accept investments that are fair games.

E. They are willing to accept lower returns and high risk.

A. may involve the decision as to the allocation between a risk-free asset and a risky asset and may involve the decision as to the allocation among different risky assets.

B. may involve considerable security analysis.

C. may involve the decision as to the allocation between a risk-free asset and a risky asset and may involve considerable security analysis.

D. may involve the decision as to the allocation among different risky assets only.

E. may involve the decision as to the allocation between a risk-free asset and a risky asset only

A. all investors will have the same portfolio asset allocations.

B. investors would perform vastly different levels of security analysis.

C. investors will hold varying amounts of the risky asset in their portfolios.

D. investors will hold varying amounts of the risk-free asset in their portfolios.

E. investors will hold varying amounts of the risky asset and the risk-free asset in their portfolios