Stock a and Stock B Each Have an Expected Return

question 59

Multiple Choice

Stock A and Stock B each have an expected return of 15 percent, a standard deviation of 20 percent, and a beta of 1.2. The returns of the two stocks are not perfectly correlated; the correlation coefficient is 0.6. You have put together a portfolio which is 50 percent Stock A and 50 percent Stock B. Which of the following statements is most correct?

• A) The portfolio's expected return is 15 percent.
• B) The portfolio's beta is less than 1.2.
• C) The portfolio's standard deviation is 20 percent.
• D) Statements a and b are correct.
• E) All of the statements above are correct.

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