Stocks A, B and C Have Betas of 0

question 85

Multiple Choice

Stocks A, B and C have betas of 0.8, 1.0, and 1.2. Portfolio P has 1/3 of its value invested in each stock. Each stock has a standard deviation of 25%, and their returns are independent of one another, i.e., the correlation coefficients between each pair of stock is zero. If market is in equilibrium, which of the following is correct?

• A) Portfolio P's expected return is greater than the expected return on Stock B.
• B) Portfolio P's expected return is equal to the expected return on Stock A.
• C) Portfolio P's expected return is less than the expected return on Stock B.
• D) Portfolio P's expected return is equal to the expected return on Stock B.

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Definitions:

Monoamine Oxidase Inhibitors

A class of drugs that treat depression by preventing the breakdown of monoamine neurotransmitters, thereby increasing their levels.

Client-Centered Therapy

A form of psychotherapy developed by Carl Rogers that emphasizes the therapist's empathy and the client's self-worth and values.

Nonjudgmental Setting

An environment or context in which individuals feel safe to express themselves or share experiences without fear of criticism or judgment.

Unconditional Positive Regard

A concept in client-centered therapy proposing that therapists should offer clients acceptance and support regardless of what the client says or does.