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

question 29

Multiple Choice

The two stocks in your portfolio, X and Y, have independent returns, so the correlation between them, r_XY 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:

Financial Growth Factors

Components that contribute to the increase in value of financial assets or earnings.

Geometric Mean

The nth root of the product of n numbers, used to calculate the average rate of return over time or the mean of ratios.

Growth Factor

One plus the percentage increase over a period of time. A growth factor less than 1 indicates negative growth, whereas a growth factor greater than 1 indicates positive growth. The growth factor cannot be less than 0.

Average Wage

The mean earnings of workers in a specific job, industry, or region, often used to compare economic wellbeing.