Stock a Has a Beta of 1

question 129

Multiple Choice

Stock A has a beta of 1.2 and a standard deviation of 20%.Stock B has a beta of 0.8 and a standard deviation of 25%.Portfolio P has $200,000 consisting of $100,000 invested in Stock A and $100,000 in Stock B.Which of the following statements is CORRECT? (Assume that the stocks are in equilibrium. )

• A) Stock A's returns are less highly correlated with the returns on most other stocks than are B's returns.
• B) Stock B has a higher required rate of return than Stock A.
• C) Portfolio P has a standard deviation of 22.5%.
• D) More information is needed to determine the portfolio's beta.
• E) Portfolio P has a beta of 1.0.

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Definitions:

P(B)

P(B) denotes the probability of an event B occurring in the context of probability theory and statistics.

Mutually Exclusive

Describes two events that cannot occur at the same time. The occurrence of one event means the other cannot occur.

Independent Events

Two or more events where the occurrence of one event does not affect the probability of the other events occurring.

Dependent Events

Events whose occurrence or outcome is influenced by another event happening.