Portfolio P Has $200,000 Consisting of $100,000 Invested in Stock

question 76

Multiple Choice

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

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

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Definitions:

Invertebrates

Animals without a backbone, comprising a large variety of species including insects, worms, and mollusks.

Red Bone Marrow

A type of marrow found in certain bones that is responsible for the production of blood cells, including red blood cells, white blood cells, and platelets.

Blood Cell Formation

The process, also known as hematopoiesis, by which new blood cells are produced, primarily taking place in the bone marrow from stem cells.

Tendon

Strap of dense connective tissue that connects a skeletal muscle to bone.