Stocks a and B Each Have an Expected Return of 15

question 110

Multiple Choice

Stocks A and B each have an expected return of 15%, a standard deviation of 20%, and a beta of 1.2. The returns on the two stocks have a correlation coefficient of +0.6. Your portfolio consists of 50% A and 50% B. Which of the following statements is CORRECTσ

• A) the portfolio's expected return is 15%.
• B) the portfolio's standard deviation is greater than 20%.
• C) the portfolio's beta is greater than 1.2.
• D) the portfolio's standard deviation is 20%.
• E) the portfolio's beta is less than 1.2.

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Definitions:

Continental Collision

The process where two continental tectonic plates collide, often resulting in mountain building.

Rifting

The process by which the Earth's crust breaks apart, often associated with the formation of new ocean basins and continental breakup.

Continental Crust

The substantially dense segment of Earth's crust which constitutes the major continents, typically being older and more intricate compared to the crust found beneath the oceans.

Ocean-Continent

This term is incomplete without further context, but generally refers to geological processes or interactions taking place between oceanic and continental plates.