Portfolio P Has $200,000 Consisting of $100,000 Invested in Stock

question 76

Multiple Choice

Portfolio P has $200,000 consisting of $100,000 invested in Stock A and $100,000 in Stock B.Stock A has a beta of 1.2 and a standard deviation of 20%.Stock B has a beta of 0.8 and a standard deviation of 25%.Which of the following statements is CORRECT? (Assume that the stocks are in equilibrium.)

• A) Stock B has a higher required rate of return than Stock A.
• B) Portfolio P has a standard deviation of 22.5%.
• C) More information is needed to determine the portfolio's beta.
• D) Portfolio P has a beta of 1.0.
• E) Stock A's returns are less highly correlated with the returns on most other stocks than are B's returns.

---

Definitions:

Work in Process

Inventory items that are in the production process but are not yet completed goods, often abbreviated as WIP.

Factory Overhead

Indirect costs related to manufacturing, including utilities, depreciation of equipment, and salaries of supervisors.

Finished Goods

Goods that are fully manufactured and prepared for sale to consumers.

Cost of Goods Sold

The total direct costs attributable to the production of goods sold in a company.