Stocks a and B Each Have an Expected Return of 15

question 103

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.Your portfolio consists of 50% A and 50% B.Which of the following statements is CORRECT?

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

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Definitions:

Intercostal Muscles

Muscles located between the ribs that play a crucial role in the breathing process by expanding and contracting the rib cage.

Thoracic Cavity

The part of the body located between the neck and the abdomen, enclosed by the ribs and containing the lungs and heart.

Pressure

The force exerted per unit area, a fundamental concept in physics and engineering that describes the intensity of an external force.

Dalton's Law

A principle stating that in a mixture of non-reacting gases, the total pressure exerted is equal to the sum of the partial pressures of the individual gases.