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?

• A) Portfolio P has a standard deviation that is greater than 25%.
• B) Portfolio P has an expected return that is less than 12%.
• C) Portfolio P has a standard deviation that is less than 25%.
• D) Portfolio P has a beta that is less than 1.2.
• E) Portfolio P has a beta that is greater than 1.2.

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Definitions:

Estimated Overhead Cost

The projected cost of indirect production expenses for a specific period.

Expected Activity

The anticipated level of operations or production, often used for budgeting and planning.

Activity-Based Costing

A costing method that assigns overhead and indirect costs to specific activities, providing detailed insights into the actual costs of processes, products, or services.

Batch Setup

Batch setup refers to the process and time required to prepare equipment and systems for manufacturing a specific batch of products, including assembly and configuration activities.