Consider the Following Information for Three Stocks, A, B, and C

question 23

Multiple Choice

Consider the following information for three stocks, A, B, and C. The stocks' returns are positively but not perfectly positively correlated with one another, i.e., the correlations are all between 0 and 1. $\begin{array}{cccc}&\text { Expected }&\text { Standard }&\\\text { Stock }&\text { Return }& \text { Deviation } & \text { Beta } \\A&10 \% &20\%& 1.0 \\B&10 \% & 10 \% & 1.0 \\C&10 \% & 12 \% &1.4\end{array}$
Portfolio AB has half of its funds invested in Stock A and half in Stock B. Portfolio ABC has one third of its funds invested in each of the three stocks. The risk-free rate is 5%, and the market is in equilibrium, so required returns equal expected returns. Which of the following statements is CORRECTσ

• A) portfolio ab's coefficient of variation is greater than 2.0.
• B) portfolio ab's required return is greater than the required return on stock a.
• C) portfolio abc's expected return is 10.66667%.
• D) portfolio abc has a standard deviation of 20%.
• E) portfolio ab has a standard deviation of 20%.

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Definitions:

Egodystonic

Thoughts and behaviours that do not coincide with one’s self-image (ego).

Egosyntonic

Lack of emotional responsiveness to events or situations that would normally elicit a strong negative emotional response such as heightened anxiety or depression.

Gender Biases

Prejudiced attitudes or discrimination based on a person's gender, often resulting in unfair treatment in various aspects of life.

Dormant

In a state of temporary inactivity or rest, with the potential to awaken or become active again in the future.