Chartered Financial Analyst Level 1
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A portfolio manager is considering investing $100,000 and has the following information about three portfolios with normally distributed returns:
Expected Annual Return | Standard Deviation of Returns
Portfolio 1: 23% | 15%
Portfolio 2: 12% | 6%
Portfolio 3: 15% | 8%
If the manager aims to withdraw $5,000 in one year without depleting the initial capital, which portfolio is the safety-first optimal choice?
A portfolio manager is considering investing $100,000 and has the following information about three portfolios with normally distributed returns:
Expected Annual Return | Standard Deviation of Returns Portfolio 1: 23% | 15% Portfolio 2: 12% | 6% Portfolio 3: 15% | 8%
If the manager aims to withdraw $5,000 in one year without depleting the initial capital, which portfolio is the safety-first optimal choice?
Exam-Like
A
Portfolio 1, due to its high expected return and standard deviation.
50.0%
B
Portfolio 2, as it has the lowest standard deviation and a high return-to-standard-deviation ratio.
0.0%
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