Portfolio AB Was Created by Investing in a Combination of Stocks

question 148

Multiple Choice

Portfolio AB was created by investing in a combination of Stocks A and B. Stock A has a beta of 1.2 and a standard deviation of 25%. Stock B has a beta of 1.4 and a standard deviation of 20%. Portfolio AB has a beta of 1.25 and a standard deviation of 18%. Which of the following statements is CORRECT?

• A) stock a has more market risk than stock b but less stand-alone risk.
• B) portfolio ab has more money invested in stock a than in stock b.
• C) portfolio ab has the same amount of money invested in each of the two stocks.
• D) portfolio ab has more money invested in stock b than in stock a.
• E) stock a has more market risk than portfolio ab.

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Definitions:

Type I Error

A statistical error that occurs when a null hypothesis is incorrectly rejected when it is actually true.

Retention Rate

The percentage of individuals or items that remain in a condition, process, or system over a given period compared to the number at the start.

University

An educational institution designed for instruction, examination, or both, of students in many branches of advanced learning.

Type I Error

The statistical error of rejecting a true null hypothesis or finding a difference when there is none, often referred to as a "false positive".