Stocks A,B,and C All Have an Expected Return of 10

question 98

Multiple Choice

Stocks A,B,and C all have an expected return of 10% and a standard deviation of 25%.Stocks A and B have returns that are independent of one another,i.e. ,their correlation coefficient,r,equals zero.Stocks A and C have returns that are negatively correlated with one another,i.e. ,r is less than 0.Portfolio AB is a portfolio with half of its money invested in Stock A and half in Stock B.Portfolio AC is a portfolio with half of its money invested in Stock A and half invested in Stock C.Which of the following statements is CORRECT?

• A) Portfolio AC has an expected return that is less than 10%.
• B) Portfolio AC has an expected return that is greater than 25%.
• C) Portfolio AB has a standard deviation that is greater than 25%.
• D) Portfolio AB has a standard deviation that is equal to 25%.
• E) Portfolio AC has a standard deviation that is less than 25%.

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Definitions:

Nonmanufacturing Costs

Expenses that are not directly tied to the production of goods, including selling, general, and administrative expenses.

Predetermined Overhead Rate

An estimated rate used to assign manufacturing overhead costs to products, based on a planned level of activity or volume of production.

Manufacturing Overhead Cost

Indirect costs related to the production process, such as factory utilities, that cannot be traced directly to specific products.

Job-Order Costing System

A costing method used when products or services are produced upon specific customer orders, allowing for detailed tracking of costs for each job.