Security A's Expected Return Is 10 Percent While the Expected

question 9

Multiple Choice

Security A's expected return is 10 percent while the expected return of B is 14 percent.The standard deviation of A's returns is 5 percent, and it is 9 percent for B.An investor plans to invest equal amounts in A and B.Which of the following statements is true about this portfolio consisting of stock A and stock B.

• A)The risk of the portfolio is equal to 7 percent.
• B)The lower the correlation of returns between the two stocks, the higher the portfolio's risk.
• C)The risk of the portfolio is primarily dependent on the utility function of the investor.
• D)The higher the correlation of returns between the two stocks, the higher the portfolio's risk.

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