Assume That the Market Is in Equilibrium and That Portfolio

question 87

Multiple Choice

Assume that the market is in equilibrium and that Portfolio AB has 50% invested in Stock A and 50% invested in Stock BStock 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% 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) Since the two stocks have zero correlation, Portfolio AB is riskless.
• B) Stock B's beta is 1.0000.
• C) Portfolio AB's required return is 11%.
• D) Portfolio AB's standard deviation is 25%.
• E) Stock A's beta is 0.8333.

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Blue-money Income

Informal term possibly referring to income earned in a foreign or stronger currency, or income derived from questionable or illegal activities.

Competitive Market

A market structure characterized by many buyers and sellers, free entry and exit, and a product for which each unit is identical to every other unit.