Stock X Has a Beta of 0

question 78

Multiple Choice

Stock X has a beta of 0.7 and Stock Y has a beta of 1.3.The standard deviation of each stock's returns is 20%.The stocks' returns are independent of each other,i.e. ,the correlation coefficient,r,between them is zero.Portfolio P consists of 50% X and 50% Y.Given this information,which of the following statements is CORRECT?

• A) Portfolio P has a standard deviation of 20%.
• B) The required return on Portfolio P is equal to the market risk premium (r_M - r_RF).
• C) Portfolio P has a beta of 0.7.
• D) Portfolio P has a beta of 1.0 and a required return that is equal to the riskless rate,r_RF.
• E) Portfolio P has the same required return as the market (r_M).

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Definitions:

Protects the Body

A generalized term for biological systems or behaviors that defend the organism against disease, infection, or injury.

Serous Membrane

An epithelial membrane that lines a body cavity that does not open to the outside of the body.

Pleural Membranes

Thin layers of tissue that envelop the lungs and line the interior of the chest cavity, facilitating lung movement during breathing.

Pericardium

A membrane surrounding the heart and consisting of an outer fibrous layer and an inner double layer of serous membrane.