Your Client, Bo Regard, Holds a Complete Portfolio That Consists

Your client, Bo Regard, holds a complete portfolio that consists of a portfolio of risky assets (P) and T-Bills. The information below refers to these assets. $$\begin{array} { l l } \mathrm { E } \left( \mathrm { R } _ { \mathrm { p } } \right) & 12.00 \% \\\text { Standard Deviation of P } & 7.20 \% \\\text { T-Bill rate } & 3.60 \% \\& \\\text { Proportion of Complete Portfolio in P } & 80 \% \\\text { Proportion of Complete Portfolio in T-Bills } & 20 \% \\& \\\text { Composition of P: } & \\\text { Stock A } & 40.00 \% \\\text { Stock B } & 25.00 \% \\\text { Stock C } & 35.00 \% \\\hline\text { Total } & \underline { 100.00 \% } \\\hline\end{array}$$
-What is the equation of Bo's Capital Allocation Line?

A) E(r_C) = 7.2 + 3.6 * Standard Deviation of C
B) E(r_C) = 3.6 + 1.167 * Standard Deviation of C
C) E(r_C) = 3.6 + 12.0 * Standard Deviation of C
D) E(r_C) = 0.2 + 1.167 * Standard Deviation of C
E) E(r_C) = 3.6 + 0.857 * Standard Deviation of C

Correct Answer:

Verified

Unlock this answer now
Get Access to more Verified Answers free of charge

Access For Free