Bob Has a $50,000 Stock Portfolio with a Beta of 1.2,an

question 68

Multiple Choice

Bob 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:

Authoritarian Leadership

A leadership approach where one person makes all the decisions without significant input from others in the group.

Productivity

The efficiency at which goods or services are produced, often measured in terms of the output per unit of labor, materials, or time.

Farming Sector

The segment of an economy devoted to the production, processing, and distribution of food, fiber, and other agricultural products.

High Degree

A level of educational attainment higher than a bachelor's degree, often referring to master's, doctoral, or professional degrees.