Stock a Has a Beta of 1

question 129

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 the 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) More information is needed to determine the portfolio's beta.
• E) Portfolio P has a beta of 1.0.

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Definitions:

Negative

refers to something that is not desirable, favorable, or constructive.

Type A Personality

Characterized by a constant feeling of working against the clock and a strong sense of competitiveness.

Achievement Orientation

A personal quality characterized by a constant striving for improvement and the setting of high-performance standards based on a desire for success.

Perfectionism

A personality trait characterized by striving for flawlessness and setting excessively high performance standards, accompanied by critical self-evaluations.