Stock a Has an Expected Return of 10% and a Standard

question 81

Multiple Choice

Stock A has an expected return of 10% and a standard deviation of 20%.Stock B has an expected return of 13% and a standard deviation of 30%.The risk-free rate is 5% and the market risk premium,r_M - r_RF,is 6%.Assume that the market is in equilibrium.Portfolio AB has 50% invested in Stock A and 50% invested in Stock B.The returns of Stock A and Stock B are independent of one another,i.e. ,the correlation coefficient between them is zero.Which of the following statements is CORRECT?

• A) Stock A's beta is 0.8333.
• B) Since the two stocks have zero correlation,Portfolio AB is riskless.
• C) Stock B's beta is 1.0000.
• D) Portfolio AB's required return is 11%.
• E) Portfolio AB's standard deviation is 25%.

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Definitions:

Autonomy

The right or condition of self-government, or in a more general sense, the capacity of an individual to make an informed, uncoerced decision.

Ritualism

The excessive or inappropriate repetition of rituals, typically seen in religious or cultural practices but can also reflect certain psychiatric conditions.

Primary Dentition

Refers to the first set of teeth in the growth development of humans and many animals, also known as baby or milk teeth.

Primary Dentition

The first set of teeth in the human dentition cycle, also known as baby or milk teeth, typically includes 20 teeth.