Consider the following information for Stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.)

Stock

A

B

C

Expected Return

9.55%

10.45

12.70

Standard Deviation

15%

15

15

Beta

0.9

1.1

1.6

Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is 5.5%, and the market is in equilibrium. (That is, required returns equal expected returns.)

d. Would you expect the standard deviation of Fund P to be less than 15%, equal to 15%, or greater than 15%? Explain.