USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 14

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Stocks A and B have a correlation coefficient of -0.8. The stocks' expected returns and standard deviations are in the table below. A portfolio consisting of 40% of stock A and 60% of stock B is constructed.

-Refer to Exhibit 6.14. What is the standard deviation of the stock A and B portfolio?

• A) 0.0%
• B) 0.5%
• C) 4.1%
• D) 6.9%
• E) 20.3%

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Definitions:

U-Shaped Long-Run Average Cost Curve

This describes the phenomenon where, over time, average costs first decrease with increased production, hit a minimum, and then increase with further production increase, forming a U-shape.

Minimum Cost

The lowest possible expense at which a particular set of goods or services can be produced or acquired.

Long-Run Average Cost Curve

A graphical representation showing how the average cost of production changes as the scale of production is altered over the long term, reflecting economies and diseconomies of scale.

Minimum Cost

The lowest possible cost at which a particular quantity of goods or services can be produced or obtained, while still maintaining efficiency and effectiveness.