Assume That the Market Is in Equilibrium and That Portfolio

question 55

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 - 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.

---

Definitions:

Generalization

The process of applying the findings or conclusions from specific instances to broader contexts or populations.

Math Classes

Educational sessions focused on the study of numbers, quantities, shapes, formulas, and their relationships and properties.

Learned Helplessness

A condition resulting from the perception that one has no control over one's environment, leading to passivity and depression.

Escape Learning

A form of learning in which an organism acquires a response to terminate an unpleasant stimulus, part of avoidance learning.