Question: Portfolio E(r) Beta Standard Deviation A 11.4% 1.2 0.30 B 13.5% 1.5 0.375 Market 10% 1 0.25 Risk-free 3% 0 0 Your employers 401k plan

Portfolio	E(r)	Beta	Standard Deviation
A	11.4%	1.2	0.30
B	13.5%	1.5	0.375
Market	10%	1	0.25
Risk-free	3%	0	0

Your employers 401k plan offers Portfolio A and Portfolio B, but does not have a market index fund among its choices. The correlation between the returns of Portfolio A and Portfolio B is 0.575. You have lots of student loan debt to pay off, and the loan with the highest rate is 13.5%. Your employer matches your contribution up to a maximum of $5,000. Which choice below best describes how you should allocate your 401k savings?

a. Allocate $5,000 to Portfolio B

b. Contribute $5,000, but you should be indifferent between how you allocate it

c. Allocate some of $5,000 to Portfolio A and some to Portfolio B

d. Allocate $5,000 to Portfolio A

e. Do not contribute. Pay off your loan.

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