Stock a Has a Beta of 1

question 27

Multiple Choice

Stock A has a beta of 1.2 and a standard deviation of 20%.Stock B has a beta of 0.8 and a standard deviation of 25%.Portfolio P has $200,000 consisting of $100,000 invested in Stock A and $100,000 in Stock B.Which of the following statements is correct? (Assume that stocks are in equilibrium.)

• A)Stock A's returns are less highly correlated with the returns on most other stocks than are B's returns.
• B)Stock B has a higher required rate of return than Stock A.
• C)Portfolio P has a standard deviation of 22.5%.
• D)Portfolio P has a beta equal to 1.0.

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