Stocks A,B,and C All Have an Expected Return of 10

question 87

Multiple Choice

Stocks A,B,and C all have an expected return of 10% and a standard deviation of 25%.Stocks A and B have returns that are independent of one another,i.e.,their correlation coefficient,r,equals zero.Stocks A and C have returns that are negatively correlated with one another,i.e.,r is less than 0.Portfolio AB is a portfolio with half of its money invested in Stock A and half in Stock B.Portfolio AC is a portfolio with half of its money invested in Stock A and half invested in Stock C.Which of the following statements is correct?

• A)Portfolio AC has an expected return that is greater than 25%.
• B)Portfolio AB has a standard deviation that is greater than 25%.
• C)Portfolio AB has a standard deviation that is equal to 25%.
• D)Portfolio AC has a standard deviation that is less than 25%.

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Definitions:

Kotter

Refers to John P. Kotter, a professor and leading thinker in the fields of change management and leadership, known for his 8-step process for leading change.

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A psychological state where individuals feel as if they have a stake or personal investment in a task or organization, leading to higher engagement and motivation.

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The process through which individuals or groups agree to follow or abide by a chosen course of action.

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Individuals who have acquired knowledge and skills through extensive practical experience in managing organizations, teams, or projects.