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:

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The potential danger of consuming an excessive amount of a substance, leading to harmful and potentially fatal reactions in the body.

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A decrease in the activity and efficiency of the heart and blood vessels, which can affect blood flow and overall cardiovascular health.

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