Stock X Has a Beta of 0

question 100

Multiple Choice

Stock X has a beta of 0.7 and Stock Y has a beta of 1.3.The standard deviation of each stock's returns is 20%.The stocks' returns are independent of each other,i.e.,the correlation coefficient,r,between them is zero.Portfolio P consists of 50% X and 50% Y.Given this information,which of the following statements is correct?

• A)The required return on Portfolio P is equal to the market risk premium (r_M - r_RF).
• B)Portfolio P has a beta of 0.7.
• C)Portfolio P has a beta of 1.0 and a required return that is equal to the riskless rate, r_RF.
• D)Portfolio P has the same required return as the market (r_M).

---

Definitions:

Central Nervous System

The part of the nervous system consisting of the brain and the spinal cord that processes information and directs activity.

Spinal Cord

A long, thin, tubular bundle of nervous tissue and support cells that extends from the brain down the length of the vertebral column, responsible for transmitting nerve signals to and from the brain to the rest of the body.

Cerebellum

A region of the brain that plays an important role in motor control, and may also be involved in some cognitive functions such as attention and language.

Cerebrum

The largest part of the brain, responsible for higher brain functions such as thought, action, and emotion.