Stock a Has an Expected Return of 12%,a Beta of 1.2,and

question 14

Multiple Choice

Stock A has an expected return of 12%,a beta of 1.2,and a standard deviation of 20%.Stock B also has a beta of 1.2,but its expected return is 10% and its standard deviation is 15%.Portfolio AB has $900,000 invested in Stock A and $300,000 invested in Stock B.The correlation between the two stocks' returns is zero (that is,rA,B = 0) .Which of the following statements is CORRECT?

• A) Portfolio AB's standard deviation is 17.5%.
• B) The stocks are not in equilibrium based on the CAPM;if A is valued correctly,then B is overvalued.
• C) The stocks are not in equilibrium based on the CAPM;if A is valued correctly,then B is undervalued.
• D) Portfolio AB's expected return is 11.0%.
• E) Portfolio AB's beta is less than 1.2.

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Definitions:

Underrepresented

Refers to groups or categories of individuals who are not adequately represented in a specific context or environment, often leading to calls for diversity and inclusion.

Prejudice

A preconceived opinion or bias towards someone or something, not based on reason or actual experience.

Gender Egalitarianism

The belief in and the promotion of equal rights, responsibilities, and opportunities for individuals of all genders.

Meta-Analysis

A statistical technique that combines the results of multiple scientific studies to arrive at a conclusion that is more precise than any of the individual studies.