Consider the Following Information for Three Stocks,A,B,and C

question 69

Multiple Choice

Consider the following information for three stocks,A,B,and C.The stocks' returns are positively but not perfectly positively correlated with one another,i.e.,the correlations are all between 0 and 1. ​
Portfolio AB has half of its funds invested in Stock A and half in Stock B.Portfolio ABC has one third of its funds invested in each of the three stocks.The risk-free rate is 5%,and the market is in equilibrium,so required returns equal expected returns.Which of the following statements is CORRECT?

• A)Portfolio AB has a standard deviation of 20%.
• B)Portfolio AB's coefficient of variation is greater than 2.0.
• C)Portfolio AB's required return is greater than the required return on Stock A.
• D)Portfolio ABC's expected return is 10.66667%.
• E)Portfolio ABC has a standard deviation of 20%.

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Definitions:

Normal Goods

Normal goods are goods for which demand increases as the income of consumers increases, showing a positive relationship between income and demand.

Income Increases

The rise in earnings received by an individual or household, which can impact consumption, savings, and investment behaviors.

Opportunity Cost

Opportunity cost represents the value of the best alternative foregone when a decision is made to choose one option over another.

Optimum

Refers to the best or most favorable condition, value, or level of something.