Stocks a and B Both Have an Expected Return of 10

question 107

Multiple Choice

Stocks A and B both have an expected return of 10% and a standard deviation of returns of 25%. Stock A has a beta of 0.8 and Stock B has a beta of 1.2. The correlation coefficient, r, between the two stocks is 0.6. Portfolio P has 50% invested in Stock A and 50% invested in B. Which of the following statements is CORRECT?

• A) Portfolio P has a standard deviation of 25% and a beta of 1.0.
• B) Based on the information we are given, and assuming those are the views of the marginal investor, it is apparent that the two stocks are in equilibrium.
• C) Portfolio P has more market risk than Stock A but less market risk than B.
• D) Stock A should have a higher expected return than Stock B as viewed by the marginal investor.
• E) Portfolio P has a coefficient of variation equal to 2.5.

---

Definitions:

Individualism

A philosophical and social outlook that emphasizes the moral worth of the individual, advocating for personal independence and self-expression.

Personal Goals

The targets or achievements a person sets for themselves, directing personal action and decision-making.

Group Goals

The shared objectives or outcomes that a group aims to achieve through collective effort and cooperation.

Attribution

The process by which individuals explain the causes of behavior and events, often as internal dispositions or external situations.