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Stocks a and B Are Quite Similar: Each Has an Expected

question 83

Multiple Choice

Stocks A and B are quite similar: Each has 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?


Definitions:

Planning Budget

An initial budget created using the assumptions of a particular level of activity to guide a company's financial decisions.

Net Operating Income

A financial metric that measures a company's profitability from its core business operations, excluding the effects of financing and taxes.

Selling

The process of promoting and transferring goods or services to customers in exchange for money.

Administrative Expense

Costs related to the general operation of a company, such as salaries of executive officers, legal and corporate office expenses.

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