Stock a Has an Expected Return of 10% and a Standard

question 87

Multiple Choice

Stock A has an expected return of 10% and a standard deviation of 20%. Stock B has an expected return of 13% and a standard deviation of 30%. The risk-free rate is 5% and the market risk premium, rM − rRF, is 6%. Assume that the market is in equilibrium. Portfolio AB has 50% invested in Stock A and 50% invested in Stock B. The returns of Stock A and Stock B are independent of one another, i.e., the correlation coefficient between them is zero. Which of the following statements is CORRECT?

• A) Stock A's beta is 0.8333.
• B) Since the two stocks have zero correlation, Portfolio AB is riskless.
• C) Stock B's beta is 1.0000.
• D) Portfolio AB's required return is 11%.
• E) Portfolio AB's standard deviation is 25%.

---

Definitions:

Darwin

Charles Darwin, a 19th-century naturalist known for his contributions to the theory of evolution and the process of natural selection.

Expression of Emotions

The process of conveying one's feelings through facial expressions, body language, tone of voice, or other behaviors.

Ancestors

Direct family members from previous generations, from whom a person is descended.

Positive Emotions

Feelings that are generally beneficial and enjoyable, such as happiness, joy, and love, which contribute to psychological well-being and quality of life.