Two Stocks in Your Portfolio, X and Y, Have Independent

question 101

Multiple Choice

two stocks in your portfolio, X and Y, have independent returns, so the correlation between them, rXY is zero 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%Which of the following statements best describes the characteristics of your 2-stock portfolio?

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

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Definitions:

Interest Rate

The percentage charged on a loan or paid on savings over a certain period of time, essentially the cost of borrowing money or the reward for saving.

Optimal Choice

The most efficient, advantageous selection or decision based on available information and constraints.

Substitution Effect

The change in consumption patterns due to a change in relative prices, leading consumers to substitute the consumption of one good for another.

Interest Rate

The remuneration, depicted as a fraction of the principal, that a lender exacts from a borrower for asset utilization.