The Stock of a Technology Company Has an Expected Return

question 27

Multiple Choice

The stock of a technology company has an expected return of 15% and a standard deviation of 20%. The stock of a pharmaceutical company has an expected return of 13% and a standard deviation of 18%. A portfolio consisting of 50% invested in each stock will have an expected return of 14 % and a standard deviation

• A) less than the average of 20% and 18%.
• B) the average of 20% and 18%.
• C) greater than the average of 20% and 18%.
• D) The answer cannot be determined with the information given.

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Definitions:

Taxable Income

The amount of income that is subject to income tax after deductions and exemptions.

Corporate Income Tax Rate

The percentage of corporate profits that are paid to the government as income tax.

Interperiod Tax Allocation

The accounting practice of distributing income taxes equally among the different periods affected by temporary differences.

Warranty Expenses

Costs that a company anticipates or incurs due to the repair or replacement of defective products under warranty.