Stock a Has a Beta of 1

question 129

Multiple Choice

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

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

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Definitions:

Temporal Bone

A pair of bones that form parts of the side of the skull and house the structures of the ears.

Mandible

The lower jawbone, which is the largest and strongest bone in the human face, involved in chewing and forming the lower part of the facial skeleton.

Foramen

A natural opening or passage, especially in a bone, through which nerves or blood vessels pass.

Tubercle

Lump on a bone.