Stock a Has a Beta of 1

question 85

Multiple Choice

Stock A has a beta of 1.2 and a standard deviation of 20 percent. Stock B has a beta of 0.8 and a standard deviation of 25 percent. Portfolio P is a $200,000 portfolio consisting of $100,000 invested in Stock A and $100,000 invested in Stock B. Which of the following statements is most correct? (Assume that the required return is determined by the Security Market Line.)

• A) Stock B has a higher required rate of return than stock A.
• B) Portfolio P has a standard deviation of 22.5 percent.
• C) Portfolio P has a beta equal to 1.0.
• D) Statements a and b are correct.
• E) Statements a and c are correct.

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Definitions:

Political Considerations

Factors related to government, policy, or organizational politics that influence decisions and actions.

Cognitive Biases

Tendencies to acquire and process information in an error-prone way.

Capacity To Acquire

The ability to learn or gain new skills, knowledge, or abilities, often considered in the context of individual or organizational growth and development.

Arouse Controversy

To provoke public debate or dispute, often by challenging established norms or opinions.