You Have a Portfolio P That Consists of 50% Stock

question 61

Multiple Choice

You have a portfolio P that consists of 50% Stock X and 50% Stock Y.Stock X has a beta of 0.7 and Stock Y has a beta of 1.3.The standard deviation of each stock's returns is 20%.The stocks' returns are independent of each other,i.e.,the correlation coefficient,r,between them is zero.Given this information,which of the following statements is CORRECT?

• A) The required return on Portfolio P is equal to the market risk premium (r_M -r_RF).
• B) Portfolio P has a beta of 0.7.
• C) Portfolio P has a beta of 1.0 and a required return that is equal to the riskless rate, r_RF.
• D) Portfolio P has the same required return as the market (r_M).
• E) Portfolio P has a standard deviation of 20%.

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Definitions:

Cash Receipts

The collection of money (cash, checks, electronic transfers) received by a business from its operational activities.

Cash Disbursements

Payments made by a business in the course of its operations, typically tracked within cash flow statements.

Direct Labor Budget

A financial plan detailing the cost associated with direct labor required for a specific period, often used in manufacturing settings.

Manufacturer

A company or individual that makes goods for sale using raw materials and components.