Stocks a and B Each Have an Expected Return of 15

question 103

Multiple Choice

Stocks A and B each have an expected return of 15%, a standard deviation of 20%, and a beta of 1.2.The returns on the two stocks have a correlation coefficient of +0.6.Your portfolio consists of 50% A and 50% B.Which of the following statements is CORRECT?

• A) The portfolio's expected return is 15%.
• B) The portfolio's standard deviation is greater than 20%.
• C) The portfolio's beta is greater than 1.2.
• D) The portfolio's standard deviation is 20%.
• E) The portfolio's beta is less than 1.2.

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Definitions:

Readily Available

Something that is easily obtainable or accessible whenever needed.

Payback Period

The duration of time it takes to recoup the cost of an investment.

Discounted Payback

A capital budgeting method that calculates the time required to break even from an investment based on its discounted cash flows rather than just the nominal cash flows.

Liquid Investments

Assets that can be quickly and easily converted into cash without significant loss in value, like stocks and bonds.