Portfolio P Has $200, 000 Consisting of $100, 000 Invested

question 73

Multiple Choice

Portfolio P has $200, 000 consisting of $100, 000 invested in Stock A and $100, 000 in Stock B.Stock A has a beta of 1.2 and a standard deviation of 20%.Stock B has a beta of 0.8 and a standard deviation of 25%.Which of the following statements is CORRECT? (Assume that the stocks are in equilibrium.)

• A) Stock B has a higher required rate of return than Stock A.
• B) Portfolio P has a standard deviation of 22.5%.
• C) More information is needed to determine the portfolio's beta.
• D) Portfolio P has a beta of 1.0.
• E) Stock A's returns are less highly correlated with the returns on most other stocks than are B's returns.

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Definitions:

Direct Labor Hour

A direct labor hour is a measure of the amount of time a worker spends directly manufacturing a product or providing a service, often used to allocate labor costs in production.

Finishing Department

The final phase in a manufacturing process where products undergo final touch-ups, quality assurance checks, and packaging.

Overhead Rate

A measure used to allocate indirect costs to produced goods or services, based on a particular formula or base.

Activity-Based Costing

An accounting technique that assigns costs to units based on the activities needed to produce or deliver them, enhancing costing accuracy.