Stock a Has an Expected Return of 12%,a Beta of 1.2,and

question 31

Multiple Choice

Stock A has an expected return of 12%,a beta of 1.2,and a standard deviation of 20%.Stock B also has a beta of 1.2,but its expected return is 10% and its standard deviation is 15%.Portfolio AB has $900,000 invested in Stock A and $300,000 invested in Stock B.The correlation between the two stocks' returns is zero (that is,r_A,B = 0) .Which of the following statements is CORRECT?

• A)Portfolio AB's standard deviation is 17.5%.
• B)The stocks are not in equilibrium based on the CAPM; if A is valued correctly, then B is overvalued.
• C)The stocks are not in equilibrium based on the CAPM; if A is valued correctly, then B is undervalued.
• D)Portfolio AB's expected return is 11.0%.
• E)Portfolio AB's beta is less than 1.2.

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Definitions:

Strategic Skills

The proficiency in planning and executing strategies that ensure the successful achievement of goals and objectives.

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Refers to the use, management, and study of computer systems, software, and networks for the processing and distribution of data.

Unconventional Strategies

Approaches in business or problem-solving that diverge from traditional methods, often innovative and out-of-the-box.

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Engaging in actions that involve a certain degree of risk, often with the potential for significant rewards or losses.