Your Portfolio Consists of $50,000 Invested in Stock X and $50,000

question 16

Multiple Choice

Your portfolio consists of $50,000 invested in Stock X and $50,000 invested in Stock Y.Both stocks have an expected return of 15%,betas of 1.6,and standard deviations of 30%.The returns of the two stocks are independent,so the correlation coefficient between them,rXY,is zero.Which of the following statements best describes the characteristics of your 2-stock portfolio?

• A) Your portfolio has a standard deviation of 30%,and its expected return is 15%.
• B) Your portfolio has a standard deviation less than 30%,and its beta is greater than 1.6.
• C) Your portfolio has a beta equal to 1.6,and its expected return is 15%.
• D) Your portfolio has a beta greater than 1.6,and its expected return is greater than 15%.
• E) Your portfolio has a standard deviation greater than 30% and a beta equal to 1.6.

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Definitions:

Financial Stop-loss

A risk management strategy used to limit or reduce losses in various financial transactions, typically by setting a predetermined exit point for an investment.

Simulation

A method or process for imitating the operation of real-world systems or processes, using models for training, analysis, or prediction.

Scenario Analysis

An approach to study what might happen in the future by looking at various potential outcomes or situations.

Sensitivity Analysis

A process used for exploring how alterations in an independent variable impact a chosen dependent variable, given a set of initial assumptions.