Stocks a and B Each Have an Expected Return of 12%,a

question 147

Multiple Choice

Stocks A and B each have an expected return of 12%,a beta of 1.2,and a standard deviation of 25%.The returns on the two stocks have a correlation of +0.6.Portfolio P has 50% in Stock A and 50% in Stock B.Which of the following statements is CORRECT?

• A) Portfolio P has a beta that is greater than 1.2.
• B) Portfolio P has a standard deviation that is greater than 25%.
• C) Portfolio P has an expected return that is less than 12%.
• D) Portfolio P has a standard deviation that is less than 25%.
• E) Portfolio P has a beta that is less than 1.2.

---

Definitions:

Exchange Rates

The rate at which one currency can be exchanged for another, influencing international trade and economics.

Foreign Subsidiary

A company owned or controlled by another company (parent) located in a different country, conducting business operations in the subsidiary's local market.

Functional Currency

This represents the primary currency of the economic environment in which a business operates, determining the currency in which its financial statements are presented.

Ending Inventory

The total value of all the goods available for sale at the end of an accounting period, calculated before the start of the next period.