Stock a Has a Beta of 0

question 112

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

---

Definitions:

Self-Sufficient

A person's ability to fulfill all of their basic needs independently, without reliance on others.

Complete Bed Bath

A method of bathing individuals who are bedridden or unable to bathe themselves, involving washing the entire body while in bed.

Behind-The-Ear Hearing Aid

A type of hearing aid designed to fit behind the ear, amplifying sound for individuals with hearing impairments.

Cerumen

A natural substance produced in the ear canal that protects the ear by trapping dirt and repelling water.