Stocks a and B Both Have an Expected Return of 10

question 21

Multiple Choice

Stocks A and B both have an expected return of 10% and a standard deviation of returns of 25%.Stock A has a beta of 0.8 and Stock B has a beta of 1.2.The correlation coefficient,r,between the two stocks is +0.6.Portfolio P has 50% invested in Stock A and 50% invested in B.Which of the following statements is CORRECT?

• A) Portfolio P has a standard deviation of 25% and a beta of 1.0.
• B) Based on the information we are given,and assuming those are the views of the marginal investor,it is apparent that the two stocks are in equilibrium.
• C) Portfolio P has more market risk than Stock A but less market risk than B.
• D) Stock A should have a higher expected return than Stock B as viewed by the marginal investor.
• E) Portfolio P has a coefficient of variation equal to 2.5.

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Definitions:

Utility Function

A mathematical representation of how consumer preferences lead to choices under conditions of scarcity.

Units Of Nuts

Measurements or quantities of nuts, often used in dietary, nutritional, or culinary contexts.

Units Of Berries

Quantifiable amounts of berries, used to measure or quantify berry production, consumption, or trade.

Indifference Curve

A graph representing different bundles of goods between which a consumer is indifferent, showing combinations that yield equal satisfaction or utility.