Stock a Has a Beta of 1

question 27

Multiple Choice

Stock A has a beta of 1.2 and a standard deviation of 20%.Stock B has a beta of 0.8 and a standard deviation of 25%.Portfolio P has $200,000 consisting of $100,000 invested in Stock A and $100,000 in Stock B.Which of the following statements is correct? (Assume that stocks are in equilibrium.)

• A)Stock A's returns are less highly correlated with the returns on most other stocks than are B's returns.
• B)Stock B has a higher required rate of return than Stock A.
• C)Portfolio P has a standard deviation of 22.5%.
• D)Portfolio P has a beta equal to 1.0.

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Definitions:

Mediator

A neutral third party who facilitates negotiations or conflict resolution between disputing parties, aiming for a mutually acceptable agreement.

Implementing Agreement

The process of putting a mutually agreed plan or contract into action.

Positive Effects

Beneficial outcomes or impacts resulting from a particular action or set of conditions.

Accommodating

The approach of being willing to adjust actions or decisions to allow for others’ needs, preferences, or interests.