Stocks A, B and C Have Betas of 0

question 85

Multiple Choice

Stocks A, B and C have betas of 0.8, 1.0, and 1.2. Portfolio P has 1/3 of its value invested in each stock. Each stock has a standard deviation of 25%, and their returns are independent of one another, i.e., the correlation coefficients between each pair of stock is zero. If market is in equilibrium, which of the following is correct?

• A) Portfolio P's expected return is greater than the expected return on Stock B.
• B) Portfolio P's expected return is equal to the expected return on Stock A.
• C) Portfolio P's expected return is less than the expected return on Stock B.
• D) Portfolio P's expected return is equal to the expected return on Stock B.

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Definitions:

False Belief

A conviction or perception that contradicts reality or factual evidence, often a focus in studies of cognitive development and psychology.

Evidence

Information or facts presented in support of an assertion, claim, or case.

Neologisms

Newly coined words or expressions or existing words used with a new meaning, often seen in creative language use or mental health disorders.

Positive Symptom

Symptoms in psychiatric disorders that add to normal behavior or experiences, such as hallucinations or delusions.