You Have a Portfolio P That Consists of 50% Stock

question 95

Multiple Choice

You have a portfolio P that consists of 50% Stock X and 50% Stock Y.Stock X has a beta of 0.7 and Stock Y has a beta of 1.3.The standard deviation of each stock's returns is 20%.The stocks' returns are independent of each other, i.e., the correlation coefficient, r, between them is zero.Given this information, which of the following statements is CORRECT?

• A) The required return on Portfolio P is equal to the market risk premium (r_M − r_RF).
• B) Portfolio P has a beta of 0.7.
• C) Portfolio P has a beta of 1.0 and a required return that is equal to the riskless rate, r_RF.
• D) Portfolio P has the same required return as the market (r_M).
• E) Portfolio P has a standard deviation of 20%.

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Definitions:

Confidence Interval

A range of values, derived from sample data, that is believed to contain the value of an unknown population parameter with a specified level of confidence.

Population Variance

The average of the squared differences between each data point in a population and the mean of the population.

Hypotheses

Statements made for the purpose of testing with statistical analysis, to see if there is enough evidence to support a particular belief or theory.

Significance Level

A threshold in hypothesis testing that determines the probability of rejecting a true null hypothesis, denoted as alpha (α).