Consider the Following Information for Three Stocks, A, B, and C.The

question 142

Multiple Choice

Consider the following information for three stocks, A, B, and C.The stocks' returns are positively but not perfectly positively correlated with one another, i.e., the correlations are all between 0 and 1. $\begin{array}{llll}& \text { Expected } & \text { Standard } & \\\text { Stock } & \text { Return } & \text { Deviation } & \text { Beta }\\\text { A } & 10 \% & 20 \% & 1.0 \\\text { B } & 10 \% & 10 \% & 1.0 \\\text { C } & 12 \% & 12 \% & 1.4\end{array}$ Portfolio AB has half of its funds invested in Stock A and half in Stock B.Portfolio ABC has one third of its funds invested in each of the three stocks.The risk-free rate is 5%, and the market is in equilibrium, so required returns equal expected returns.Which of the following statements is CORRECT?

• A) Portfolio AB's coefficient of variation is greater than 2.0.
• B) Portfolio AB's required return is greater than the required return on Stock A.
• C) Portfolio ABC's expected return is 10.66667%.
• D) Portfolio ABC has a standard deviation of 20%.
• E) Portfolio AB has a standard deviation of 20%.

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Definitions:

Defense Mechanisms

Unconscious psychological strategies employed to protect oneself from anxiety arising from unacceptable thoughts or feelings.

Reaction Formation

A defense mechanism where an individual behaves in a manner opposite to their genuine impulses, often due to guilt or social acceptability.

Repressed Hostilities

Hostile feelings or aggressive impulses that have been unconsciously suppressed or held back from conscious awareness.

Emotional Healing

The process of recovering from emotional pain, trauma, or distress through various coping mechanisms and strategies.