Assume That the Market Is in Equilibrium and That Portfolio

question 28

Multiple Choice

Assume that the market is in equilibrium and that Portfolio AB has 50% invested in Stock A and 50% invested in Stock B. Stock A has an expected return of 10% and a standard deviation of 20%. Stock B has an expected return of 13% and a standard deviation of 30%. The risk-free rate is 5% and the market risk premium, rM σ rRF, is 6%. The returns of Stock A and Stock B are independent of one another, i.e., the correlation coefficient between them is zero. Which of the following statements is CORRECT?

• A) since the two stocks have zero correlation, portfolio ab is riskless.
• B) stock b's beta is 1.0000.
• C) portfolio ab's required return is 11%.
• D) portfolio ab's standard deviation is 25%.
• E) stock a's beta is 0.8333.

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Definitions:

Blood Type

The classification of human blood based on the presence or absence of inherited antigenic substances on the surface of red blood cells.

Lymphoid Tissue

A type of connective tissue that includes lymphocytes, aiding in the immune response by fighting off infections.

Lymphocytes

A type of white blood cell that is part of the immune system, involved in protecting the body from infectious disease and foreign invaders.

White Blood Cells

Immune system cells that play a crucial role in defending the body from infectious diseases and external threats.