Charlie and Lucinda Each Have $50, 000 Invested in Stock

question 132

Multiple Choice

Charlie and Lucinda each have $50, 000 invested in stock portfolios.Charlie's has a beta of 1.2, an expected return of 10.8%, and a standard deviation of 25%.Lucinda's has a beta of 0.8, an expected return of 9.2%, and a standard deviation that is also 25%.The correlation coefficient, r, between Charlie's and Lucinda's portfolios is zero.If Charlie and Lucinda marry and combine their portfolios, which of the following best describes their combined $100, 000 portfolio?

• A) The combined portfolio's beta will be equal to a simple weighted average of the betas of the two individual portfolios, 1.0; its expected return will be equal to a simple weighted average of the expected returns of the two individual portfolios, 10.0%; and its standard deviation will be less than the simple average of the two portfolios' standard deviations, 25%.
• B) The combined portfolio's expected return will be greater than the simple weighted average of the expected returns of the two individual portfolios, 10.0%.
• C) The combined portfolio's standard deviation will be greater than the simple average of the two portfolios' standard deviations, 25%.
• D) The combined portfolio's standard deviation will be equal to a simple average of the two portfolios' standard deviations, 25%.
• E) The combined portfolio's expected return will be less than the simple weighted average of the expected returns of the two individual portfolios, 10.0%.

---

Definitions:

Members' Satisfaction

Members' Satisfaction measures how happy or content members of a group, organization, or service are with the benefits, services, or experiences provided to them.

Content

Material or information provided as part of media, publications, or the internet, intended for consumption by an audience.

Proceedings

The actions taken or events that occur in a formal context, such as a conference or court.

Task Group Meetings

Gatherings focused on discussing and making progress on specific tasks or projects within an organizational or group context.