Stocks a and B Are Quite Similar: Each Has an Expected

question 101

Multiple Choice

Stocks A and B are quite similar: Each has an expected return of 12%, a beta of 1.2, and a standard deviation of 25%. The returns on the two stocks have a correlation of 0.6. Portfolio P has 50% in Stock A and 50% in Stock B. Which of the following statements is CORRECTσ

• A) portfolio p has a standard deviation that is greater than 25%.
• B) portfolio p has an expected return that is less than 12%.
• C) portfolio p has a standard deviation that is less than 25%.
• D) portfolio p has a beta that is less than 1.2.
• E) portfolio p has a beta that is greater than 1.2.

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