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Question
Portfolio P has $200,000 consisting of $100,000 invested in Stock A and $100,000 in Stock B. 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%. Which of the following statements is CORRECT? (Assume that the stocks are in equilibrium.)a. Stock B has a higher required rate of return than Stock A.
b. Portfolio P has a standard deviation of 22.5%.
c. More information is needed to determine the portfolio's beta.
d. Portfolio P has a beta of 1.0.
e. Stock A's returns are less highly correlated with the returns on most other stocks than are B's returns.
Answer
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