Portfolio Consists of $50,000 Invested in Stock X and $50,000

question 36

Multiple Choice

portfolio consists of $50,000 invested in Stock X and $50,000 invested in Stock Y.Both stocks have an expected return of 15%, betas of 1.6, and standard deviations of 30%.The returns of the two stocks are independent, so the correlation coefficient between them, rXY, is zero.Which of the following statements best describes the characteristics of your 2-stock portfolio?

• A)Your portfolio has a standard deviation of 30%, and its expected return is 15%.
• B)Your portfolio has a standard deviation less than 30%, and its beta is greater than 1.6.
• C)Your portfolio has a beta equal to 1.6, and its expected return is 15%.
• D)Your portfolio has a beta greater than 1.6, and its expected return is greater than 15%.
• E)Your portfolio has a standard deviation greater than 30% and a beta equal to 1.6.

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Definitions:

Correlation

A statistical measure that indicates the extent to which two or more variables fluctuate together. A positive correlation indicates that as one variable increases, so does the other.

Correlational Hypothesis

A prediction about the existence of a relationship between two variables, without implying causation.

Experimental

Pertaining to a method of research that involves the manipulation of one or more variables to determine their effect on a certain outcome.

Neurotic

Referring to an individual's tendency towards anxiety, depression, or other emotional instability, often as a personality trait.