Stock a Has a Beta of 0

question 112

Multiple Choice

Stock A has a beta of 0.8,Stock B has a beta of 1.0,and Stock C has a beta of 1.2.Portfolio P has 1/3 of its value invested in each stock.Each stock has a standard deviation of 25%,and their returns are independent of one another,i.e. ,the correlation coefficients between each pair of stocks is zero.Assuming the market is in equilibrium,which of the following statements is CORRECT?

• A) Portfolio P's expected return is greater than the expected return on Stock B.
• B) Portfolio P's expected return is equal to the expected return on Stock A.
• C) Portfolio P's expected return is less than the expected return on Stock B.
• D) Portfolio P's expected return is equal to the expected return on Stock B.
• E) Portfolio P's expected return is greater than the expected return on Stock C.

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Definitions:

Pedophilia

A psychiatric disorder characterized by an adult having a primary or exclusive sexual attraction to prepubescent children.

Voyeurism

A paraphilic disorder involving achieving sexual pleasure from watching unsuspecting individuals who are naked, in the process of disrobing, or engaging in sexual activity.

Depression

A common but serious mood disorder that affects how you feel, think, and handle daily activities, characterized by persistent feelings of sadness or loss of interest.

Dementia

A group of symptoms affecting memory, thinking, and social abilities severely enough to interfere with daily functioning.