Bob Has a $50,000 Stock Portfolio with a Beta of 1.2,an

question 68

Multiple Choice

Bob has a $50,000 stock portfolio with a beta of 1.2,an expected return of 10.8%,and a standard deviation of 25%.Becky also has a $50,000 portfolio,but it has a beta of 0.8,an expected return of 9.2%,and a standard deviation that is also 25%.The correlation coefficient,r,between Bob's and Becky's portfolios is zero.If Bob and Becky marry and combine their portfolios,which of the following best describes their combined $100,000 portfolio?

• A) The combined portfolio's expected return will be less than the simple weighted average of the expected returns of the two individual portfolios,10.0%.
• B) The combined portfolio's beta will be equal to a simple weighted average of the betas of the two individual portfolios,1.0;its expected return will be equal to a simple weighted average of the expected returns of the two individual portfolios,10.0%;and its standard deviation will be less than the simple average of the two portfolios' standard deviations,25%.
• C) The combined portfolio's expected return will be greater than the simple weighted average of the expected returns of the two individual portfolios,10.0%.
• D) The combined portfolio's standard deviation will be greater than the simple average of the two portfolios' standard deviations,25%.
• E) The combined portfolio's standard deviation will be equal to a simple average of the two portfolios' standard deviations,25%.

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Definitions:

Displacement

In psychoanalytic theory, the defense mechanism that redirects an impulse from a dangerous target to a safe one.

Superego

A component of Sigmund Freud's psychoanalytic theory, representing the moral conscience and ethical standards of the psyche.

Psychic Energy

A concept in psychoanalytic theory referring to the force behind human behaviors, thoughts, and feelings originating from innate instincts and drives.

Moral Judgments

Decisions or evaluations about the rightness or wrongness of actions, often based on a set of ethical principles or societal norms.