Stocks A, B, and C Are Similar in Some Respects

question 10

Multiple Choice

Stocks A, B, and C are similar in some respects: Each has an expected return of 10% and a standard deviation of 25%.Stocks A and B have returns that are independent of one another; i.e., their correlation coefficient, r, equals zero.Stocks A and C have returns that are negatively correlated with one another; i.e., r is less than 0.Portfolio AB is a portfolio with half of its money invested in Stock A and half in Stock B.Portfolio AC is a portfolio with half of its money invested in Stock A and half invested in Stock C.Which of the following statements is CORRECT?

• A) Portfolio AC has an expected return that is greater than 25%.
• B) Portfolio AB has a standard deviation that is greater than 25%.
• C) Portfolio AB has a standard deviation that is equal to 25%.
• D) Portfolio AC has a standard deviation that is less than 25%.
• E) Portfolio AC has an expected return that is less than 10%.

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Definitions:

Diastolic

Refers to the phase of the heartbeat when the heart muscle relaxes and allows the chambers to fill with blood, specifically noted as the bottom number in blood pressure readings.

Hypertension

A condition characterized by consistently elevated blood pressure levels, often leading to significant health risks.

Vessel Walls

The structural components that form the boundaries of blood vessels, such as arteries and veins, responsible for regulating blood pressure and flow.

Apex Pulse

The palpable beat of the heart's apex against the chest wall, typically assessed as part of a physical examination.