1.) Stock X and Stock Y each have a standard deviation of 40%. If the stocks have a correlation coefficient less than one, then a portfolio of the two stocks has a standard deviation of _________________. LO1

It is impossible to tell without more information.

40%.

More than 40%.

Less than 40%.

2.) The required return of a stock given by the CAPM is _______________. LO1

The risk-free rate on the relevant Treasury security.

The return the average investor expects from a stock next period in a market that is not in equilibrium.

The degree to which an asset is exposed to market risk.

The minimum return the average investor requires as compensation for the risk of holding the stock.

3.) A stock with a beta of 2 tends to have returns that are _________________. LO3

About half as volatile than the markets returns.

About as volatile than the markets returns.

It is impossible to tell.

About twice as volatile than the markets returns.