Stock a Has a Beta of 0

question 15

Multiple Choice

Stock A has a beta of 0.8, Stock B has a beta of 1.0, and Stock C has a beta of 1.2.Portfolio P has 1/3 of its value invested in each stock.Each stock has a standard deviation of 25%, and their returns are independent of one another, i.e., the correlation coefficients between each pair of stocks is zero.Assuming the market is in equilibrium, which of the following statements is CORRECT?

• A) Portfolio P's expected return is equal to the expected return on Stock A.
• B) Portfolio P's expected return is less than the expected return on Stock B.
• C) Portfolio P's expected return is equal to the expected return on Stock B.
• D) Portfolio P's expected return is greater than the expected return on Stock C.
• E) Portfolio P's expected return is greater than the expected return on Stock B.

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Definitions:

Medical Equipment

Devices used in medical practice to diagnose, prevent, or treat diseases or medical conditions.

Cognitive Development

A process involving the growth and enhancement of mental abilities, such as thinking, reasoning, problem-solving, and understanding, throughout a person's life.

Formal Operations

The final stage of cognitive development in Piaget's theory, typically beginning around age 12, characterized by the ability to think abstractly, logically, and systematically.

Jean Piaget

A Swiss psychologist known for his pioneering work in child development, specifically his theory of cognitive development that explains how children construct a mental model of the world.