Stock a Has a Beta of 0

question 15

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

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Definitions:

Territory

An area or region designated for specific business activities or responsibilities, often defined for sales purposes.

Corporate Customers

Business entities or organizations that purchase goods or services for their operational needs, as opposed to individual consumers.

Segment

A group of people or organizations sharing one or more characteristics that cause them to have similar product needs.

Market

A place or mechanism where buyers and sellers interact to trade goods, services, or information.