Stock X Has a Beta of 0

question 100

Multiple Choice

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.Portfolio P consists of 50% X and 50% Y.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).

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