Stock a Has an Expected Return of 10% and a Standard

question 81

Multiple Choice

Stock A has an expected return of 10% and a standard deviation of 20%.Stock B has an expected return of 13% and a standard deviation of 30%.The risk-free rate is 5% and the market risk premium,r_M - r_RF,is 6%.Assume that the market is in equilibrium.Portfolio AB has 50% invested in Stock A and 50% invested in Stock B.The returns of Stock A and Stock B are independent of one another,i.e. ,the correlation coefficient between them is zero.Which of the following statements is CORRECT?

• A) Stock A's beta is 0.8333.
• B) Since the two stocks have zero correlation,Portfolio AB is riskless.
• C) Stock B's beta is 1.0000.
• D) Portfolio AB's required return is 11%.
• E) Portfolio AB's standard deviation is 25%.

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Definitions:

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A chemical compound (H2O2) used as an oxidizer, bleaching agent, and antiseptic.

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Cylindrical structures made of tubulin proteins that are part of the cytoskeleton in all eukaryotic cells and are involved in cell division, movement, and shape maintenance.

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Processes, including mitosis and meiosis, through which eukaryotic cells divide, ensuring accurate distribution of chromosomes to daughter cells.

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Cellular structures responsible for protein synthesis, reading mRNA sequences to assemble amino acids into polypeptides.