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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Definitions:

Terms

The components of an algebraic expression that are separated by addition or subtraction signs.

Trade Discount

A reduction in the retail price offered by sellers to buyers in the trade as an incentive or reward for buying in bulk or meeting certain conditions.

List Price

The price quoted by a supplier of a product before any trade discounts.

Net Price

The price paid after the deduction of trade discounts.