Stocks a and B Each Have an Expected Return of 15%,a

question 1

Multiple Choice

Stocks A and B each have an expected return of 15%,a standard deviation of 20%,and a beta of 1.2.The returns on the two stocks have a correlation coefficient of +0.6.You have a portfolio that consists of 50% A and 50% B.Which of the following statements is correct?

• A)The portfolio's beta is less than 1.2.
• B)The portfolio's expected return is 15%.
• C)The portfolio's standard deviation is greater than 20%.
• D)The portfolio's beta is greater than 1.2.

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Definitions:

Premium

The amount paid for an insurance policy or the difference above the nominal or face value of a security.

Expected Value

The predicted value of a variable, calculated as a sum of all possible values each multiplied by the probability of its occurrence.

Insurance Policy

A contractual agreement between an individual or entity and an insurance company, outlining the terms for the insurer to compensate the insured for specific losses in exchange for premiums paid.

Premium

An amount paid in addition to a standard price, often for insurance, or a higher or more privileged level of service or product.