Stocks a and B Are Quite Similar: Each Has an Expected

question 83

Multiple Choice

Stocks A and B are quite similar: Each has an expected return of 12%, a beta of 1.2, and a standard deviation of 25%.The returns on the two stocks have a correlation of 0.6.Portfolio P has 50% in Stock A and 50% in Stock B.Which of the following statements is CORRECT?

• A) Portfolio P has a standard deviation that is greater than 25%.
• B) Portfolio P has an expected return that is less than 12%.
• C) Portfolio P has a standard deviation that is less than 25%.
• D) Portfolio P has a beta that is less than 1.2.
• E) Portfolio P has a beta that is greater than 1.2.

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Definitions:

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A change in which the form of matter is altered but one substance is not transformed into another.

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The unique combination of chemical properties and composition that precisely identifies a substance.