Stocks a and B Each Have an Expected Return of 15

question 34

Multiple Choice

Stocks A and B each have an expected return of 15%, a standard deviation of 20%, and a beta of 1.2. The returns on the two stocks have a correlation coefficient of +0.6. You have a portfolio that consists of 50% A and 50% B. Which of the following statements is CORRECT?

• A) The portfolio's beta is less than 1.2.
• B) The portfolio's expected return is 15%.
• C) The portfolio's standard deviation is greater than 20%.
• D) The portfolio's beta is greater than 1.2.
• E) The portfolio's standard deviation is 20%.

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Definitions:

Activity Variance

The difference between the budgeted and actual amount of an activity, such as hours worked or units produced, affecting budget and cost planning.

Budgeting

A financial planning process that involves the estimation of future revenues and expenses over a specified period.

Personnel Expenses

Costs associated with employing staff, including wages, benefits, and taxes.

Client-visits

Meetings or engagements with clients outside the company's premises for business discussions or services.