Stock X Has a Beta of 0

question 16

Multiple Choice

Stock X has a beta of 0.7 and Stock Y has a beta of 1.3. The standard deviation of each stock's returns is 20%. The stocks' returns are independent of each other, i.e., the correlation coefficient, r, between them is zero. Portfolio P consists of 50% X and 50% Y. Given this information, which of the following statements is CORRECT?

• A) Portfolio P has a standard deviation of 20%.
• B) The required return on Portfolio P is equal to the market risk premium (rM − rRF).
• C) Portfolio P has a beta of 0.7.
• D) Portfolio P has a beta of 1.0 and a required return that is equal to the riskless rate, rRF.
• E) Portfolio P has the same required return as the market (rM).

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Definitions:

Ex Post Facto Design

Ex Post Facto Design is a research approach where investigators study variables after the events have occurred, analyzing the effects of naturally occurring differences without manipulation.

Correlational Study

A research method that examines the relationship between two or more variables to determine if a change in one is associated with a change in others.

Retrospective Study

A research design that looks back in time to analyze data from past records to investigate a particular outcome or phenomenon.

Prospective Study

A research design that follows participants forward in time to examine the relationship between specific exposures and outcomes.