Stocks a and B Each Have an Expected Return of 15

question 67

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.

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Definitions:

Evaluate

To assess or determine the value, significance, or condition of something typically in a detailed and systematic way.

Evaluate

The process of examining something to determine its value or worth, often in a careful and systematic way.

Accurate

Characterized by correctness and precision; free from errors or mistakes.

Cent

A monetary unit equal to one hundredth of a dollar or other unit of currency.