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

question 125

Multiple Choice

Consider the following information for three stocks, A, B, and C, and portfolios of these stocks. The stocks' returns are positively but not perfectly positively correlated with one another, i.e., the correlation coefficients are all between 0 and 1. 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 has a standard deviation of 20%.
• B) Portfolio AB's coefficient of variation is greater than 2.0.
• C) Portfolio AB's required return is greater than the required return on Stock A.
• D) Portfolio ABC's expected return is 10.67%.

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Definitions:

Nucleus

The central and most important part of an object, movement, or group, forming the basis for its activity and growth, or in biology, the membrane-bound organelle in a cell that contains DNA.

Soma

In biological terms, it refers to the body of an organism as distinct from its reproductive cells, or in cellular anatomy, the cell body of a neuron.

Neuron

A specialized cell that conducts impulses through the nervous system.

Dendrite

The branched projections of a neuron that act to conduct the electrochemical stimulation received from other neural cells to the body, or soma, of the neuron from which it projects.