Consider the Following Information for Three Stocks,A,B,and C Portfolio AB Has Half of Its Funds Invested in Stock

question 124

Multiple Choice

Consider the following information for three stocks,A,B,and C.The stocks' returns are positively but not perfectly positively correlated with one another,i.e.,the correlations are all between 0 and 1. $\begin{array}{cccc}\text { Stock } & \begin{array}{c}\text { Expected } \\\text { Return }\end{array} & \begin{array}{c}\text { Standard } \\\text { Deviation }\end{array} & \text { Beta } \\\mathrm{~A} &{10 \%} & 20 \% & 1.0 \\\mathrm{~B} &{10 \%} & 10 \% & 1.0 \\\mathrm{~D} & 10 \% & 12 \% & 1.4\\\end{array}$
Portfolio AB has half of its funds invested in Stock A and half in Stock B.Portfolio ABC has one third of its funds invested in each of the three stocks.The risk-free rate is 5%,and the market is in equilibrium,so required returns equal expected returns.Which of the following statements is CORRECT?

• A) Portfolio AB's coefficient of variation is greater than 2.0.
• B) Portfolio AB's required return is greater than the required return on Stock A.
• C) Portfolio ABC's expected return is 10.66667%.
• D) Portfolio ABC has a standard deviation of 20%.
• E) Portfolio AB has a standard deviation of 20%.

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Definitions:

Disbursements

Payments made by a business in the course of its operations, often involving the outflow of cash to vendors or suppliers.

Control Procedures

Measures and policies implemented by a firm to ensure the integrity of financial and accounting information, promote accountability, and prevent fraud.

Petty Cash Fund

A minor sum of money maintained for the purpose of covering various minor costs through immediate transactions.

Replenished

The process of refilling or restoring inventory, supplies, or funds to their previous level or to a desired level of capacity.