Stock a Has a Beta of 0

question 15

Multiple Choice

Stock A has a beta of 0.8, Stock B has a beta of 1.0, and Stock C has a beta of 1.2.Portfolio P has 1/3 of its value invested in each stock.Each stock has a standard deviation of 25%, and their returns are independent of one another, i.e., the correlation coefficients between each pair of stocks is zero.Assuming the market is in equilibrium, which of the following statements is CORRECT?

• A) Portfolio P's expected return is equal to the expected return on Stock A.
• B) Portfolio P's expected return is less than the expected return on Stock B.
• C) Portfolio P's expected return is equal to the expected return on Stock B.
• D) Portfolio P's expected return is greater than the expected return on Stock C.
• E) Portfolio P's expected return is greater than the expected return on Stock B.

---

Definitions:

Tort Liability

A legal obligation arising from civil wrongs or injuries for which a court provides a remedy in the form of damages.

Intentional Pattern

Purposeful and systematic behaviors or actions, frequently discussed in legal contexts to demonstrate deliberate conduct.

Outrageous Abuse

An extreme form of misconduct or mistreatment that is shocking and exceeds the bounds of decency.

False Imprisonment

An act of restraining a person against their will in a bounded area without any legal justification.