Stock a Has an Expected Return of 10% and a Standard

question 87

Multiple Choice

Stock A has an expected return of 10% and a standard deviation of 20%. Stock B has an expected return of 13% and a standard deviation of 30%. The risk-free rate is 5% and the market risk premium, rM − rRF, is 6%. Assume that the market is in equilibrium. Portfolio AB has 50% invested in Stock A and 50% invested in Stock B. The returns of Stock A and Stock B are independent of one another, i.e., the correlation coefficient between them is zero. Which of the following statements is CORRECT?

• A) Stock A's beta is 0.8333.
• B) Since the two stocks have zero correlation, Portfolio AB is riskless.
• C) Stock B's beta is 1.0000.
• D) Portfolio AB's required return is 11%.
• E) Portfolio AB's standard deviation is 25%.

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Definitions:

Person-Environment Fit

The compatibility between an individual and a work environment that occurs when their characteristics are well matched.

Idealized Self

An individual's conception of their optimal self and attributes, which can serve as a motivational template for personal development and goal setting.

Real Self-Image

An individual's view of themselves, based on their true characteristics, feelings, and behaviors, as opposed to how they may wish to appear.

Homeostasis

A steady state of bodily functioning and equilibrium.