Stocks A,B,and C All Have an Expected Return of 10

question 98

Multiple Choice

Stocks A,B,and C all have an expected return of 10% and a standard deviation of 25%.Stocks A and B have returns that are independent of one another,i.e. ,their correlation coefficient,r,equals zero.Stocks A and C have returns that are negatively correlated with one another,i.e. ,r is less than 0.Portfolio AB is a portfolio with half of its money invested in Stock A and half in Stock B.Portfolio AC is a portfolio with half of its money invested in Stock A and half invested in Stock C.Which of the following statements is CORRECT?

• A) Portfolio AC has an expected return that is less than 10%.
• B) Portfolio AC has an expected return that is greater than 25%.
• C) Portfolio AB has a standard deviation that is greater than 25%.
• D) Portfolio AB has a standard deviation that is equal to 25%.
• E) Portfolio AC has a standard deviation that is less than 25%.

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Definitions:

Napoleon

A French military leader and emperor who rose to prominence during the French Revolution, leading several successful campaigns during the Revolutionary and Napoleonic Wars, and instituting lasting reforms across Europe.

Coup

A sudden, violent, and illegal seizure of government power, often executed by a small group within the existing state structures, such as the military or political elite.

Executive Authority

Refers to the part of government responsible for implementing laws and running the day-to-day affairs of a state, typically vested in a president, prime minister, or monarch.

Ottoman Empire

A historical empire founded at the end of the 13th century in northwest Anatolia, it expanded to include vast territories in Southeast Europe, Western Asia, and North Africa before its dissolution after World War I.