Assume That the Market Is in Equilibrium and That Portfolio

question 134

Multiple Choice

Assume that the market is in equilibrium and that Portfolio AB has 50% invested in Stock A and 50% invested in Stock B.Stock A has an expected return of 10% and a standard deviation of 20%.Stock B has an expected return of 13% and a standard deviation of 30%.The risk-free rate is 5% and the market risk premium, r_M − r_RF, is 6%.The returns of Stock A and Stock B are independent of one another, i.e., the correlation coefficient between them is zero.Which of the following statements is CORRECT?

• A) Since the two stocks have zero correlation, Portfolio AB is riskless.
• B) Stock B's beta is 1.0000.
• C) Portfolio AB's required return is 11%.
• D) Portfolio AB's standard deviation is 25%.
• E) Stock A's beta is 0.8333.

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Definitions:

Pharmaceutical Production

The process involved in creating medications in various forms, including solids, liquids, and semi-solids, on a large scale.

Systems Thinking

A holistic approach to analysis that focuses on the way that a system's constituent parts interrelate and how systems work over time and within the context of larger systems.

Interconnectedness

The state of being connected with each other, especially referring to the links between systems, organizations, or people that influence or interact with one another.

Incrementalism

A strategy of making minor changes or adjustments in order to gradually improve a product, process, or policy.