Portfolio Management Q95
95Three investors, Bill, Jill, and Mill, invest in individual securities. The table below shows the expected annual returns, expected standard deviation, and the correlation between their security and the market.
| Investor | Expected Annual Return (%) | Expected Standard Deviation (%) | Correlation between the security and the market |
| Bill | 15 | 21 | 0.85 |
| Jill | 12 | 21 | 0.75 |
| Mill | 12 | 28 | 0.65 |
The following information is available for the market:Expected Annual Return:11%
Expected Standard Deviation: 16%
Which investor is most likely to be exposed to the highest total risk?
Expected Standard Deviation: 16%
Which investor is most likely to be exposed to the highest total risk?
- Option : C
- Explanation : The highest total risk is calculated based on the highest total variance. Bill: 0.21² = 0.0441 Jill: 0.21² = 0.0441 Mill: 0.28² = 0.0784 Thus Mill is exposed to the highest total risk.
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