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

question 16

Multiple Choice

Your 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:

Natural Monopoly

A type of monopoly that exists due to the high cost or complexity of operating in a specific industry, which effectively prevents other competitors.

Monopoly Inefficiency

The loss of economic efficiency that occurs when a single firm controls the market, leading to higher prices and lower product quantity or quality than in competitive markets.

Perfect Price Discrimination

A market strategy where a seller charges each buyer their maximum willingness to pay, capturing the entire consumer surplus as profit.

Willingness-to-Pay

The maximum amount a consumer is prepared to spend on a good or service.