Portfolio AB Was Created by Investing in a Combination of Stocks

question 54

Multiple Choice

Portfolio AB was created by investing in a combination of Stocks A and B.Stock A has a beta of 1.2 and a standard deviation of 25%.Stock B has a beta of 1.4 and a standard deviation of 20%.Portfolio AB has a beta of 1.25 and a standard deviation of 18%.Which of the following statements is CORRECT?

• A) Stock A has more market risk than Stock B but less stand-alone risk.
• B) Portfolio AB has more money invested in Stock A than in Stock B.
• C) Portfolio AB has the same amount of money invested in each of the two stocks.
• D) Portfolio AB has more money invested in Stock B than in Stock A.
• E) Stock A has more market risk than Portfolio AB.

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Definitions:

Dividend Clientele Effect

A theory suggesting that investors prefer dividends at rates that match their own tax situation.