Stocks a and B Are Quite Similar: Each Has an Expected

question 140

Multiple Choice

Stocks A and B are quite similar: Each has an expected return of 12%, a beta of 1.2, and a standard deviation of 25%.The returns on the two stocks have a correlation of 0.6.Portfolio P has 50% in Stock A and 50% in Stock B.Which of the following statements is CORRECT?

• A) Portfolio P has a standard deviation that is greater than 25%.
• B) Portfolio P has an expected return that is less than 12%.
• C) Portfolio P has a standard deviation that is less than 25%.
• D) Portfolio P has a beta that is less than 1.2.
• E) Portfolio P has a beta that is greater than 1.2.

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Definitions:

P Value

The probability of observing test results at least as extreme as the results actually observed, under the assumption that the null hypothesis is correct.

Chi-square Statistic

A measure used in statistics to assess how expectations compare to actual observed data, particularly in the context of categorical variables.

Observed Frequencies

The actual number of occurrences of each category in statistical data.

Expected Frequencies

The anticipated counts in each category of a contingency table under the assumption that the null hypothesis is true, calculated from the proportions in the total sample.