Has a $50,000 Stock Portfolio with a Beta of 1

question 137

Multiple Choice

has a $50,000 stock portfolio with a beta of 1.2, an expected return of 10.8%, and a standard deviation of 25%.Becky also has a $50,000 portfolio, but it has a beta of 0.8, an expected return of 9.2%, and a standard deviation that is also 25%.The correlation coefficient, r, between Bob's and Becky's portfolios is zero.If Bob and Becky marry and combine their portfolios, which of the following best describes their combined $100,000 portfolio?

• A)The combined portfolio's expected return will be less than the simple weighted average of the expected returns of the two individual portfolios, 10.0%.
• B)The combined portfolio's beta will be equal to a simple weighted average of the betas of the two individual portfolios, 1.0; its expected return will be equal to a simple weighted average of the expected returns of the two individual portfolios, 10.0%; and its standard deviation will be less than the simple average of the two portfolios' standard deviations, 25%.
• C)The combined portfolio's expected return will be greater than the simple weighted average of the expected returns of the two individual portfolios, 10.0%.
• D)The combined portfolio's standard deviation will be greater than the simple average of the two portfolios' standard deviations, 25%.
• E)The combined portfolio's standard deviation will be equal to a simple average of the two portfolios' standard deviations, 25%.

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Definitions:

Unmatched Pair

A pair of items or entities that do not correspond to or complement each other in expected ways.

Cortisol

A hormone, released during the body’s response to stress, that increases blood glucose levels and affects the immune response.

Epinephrine (Adrenaline)

A hormone and neurotransmitter involved in the body's fight-or-flight response, increasing heart rate, muscle strength, blood pressure, and sugar metabolism.

Cytokines

These chemical messengers are produced by the body as part of its immune response. These proteins can either promote inflammation or reduce it.