GAQM CISP-001 Q&A - in .pdf

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  • Exam Code: CISP-001
  • Exam Name: Certified Information Security Professional (CISP)
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  • Exam Code: CISP-001
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Ace Investment Managers manages an equity fund with an expected risk premium of 10% and a standard deviation of 24%. The risk-free rate is 6%. The expected return on the market index is 12%, and the market index has a standard deviation of 20%. Ace's client has a $300,000 portfolio, $180,000 of which is invested in the equity fund and $120,000 of which is invested in a T-bill money market fund. The standard deviation of return on this combined portfolio is closest to:
A. 14.40%.
B. 15.8%.
C. 9.6%.
Answer: A
Standard deviation of portfolio = (180/300)0.24 = 14.4%. The return on the amount invested in T-bills has no variability because it is riskless. Thus, the source of risk is the standard deviation of the equity fund weighted by the 60% of the portfolio invested in it.

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