Consider the Following Information for Three Stocks,A,B,and C

question 31

Multiple Choice

Consider the following information for three stocks,A,B,and C.The stocks' returns are positively but not perfectly positively correlated with one another,i.e. ,the correlations are all between 0 and 1. Portfolio AB has half of its funds invested in Stock A and half in Stock B.Portfolio ABC has one third of its funds invested in each of the three stocks.The risk-free rate is 5%,and the market is in equilibrium,so required returns equal expected returns.Which of the following statements is CORRECT?

• A) Portfolio AB has a standard deviation of 20%.
• B) Portfolio AB's coefficient of variation is greater than 2.0.
• C) Portfolio AB's required return is greater than the required return on Stock A.
• D) Portfolio ABC's expected return is 10.66667%.
• E) Portfolio ABC has a standard deviation of 20%.

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