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Portfolio risk and return 1. Stock A and Stock B each have an expected return of 12 percent, a beta of 1.2 , and a standard deviation of 25 percent. The returns on the two stocks have a correlation of 0.6 . Portfolio P has half of its money invested in Stock A and half in Stock B. Which of the following statements is most correct? a. Portfolio P has an expected return of 12 percent. b. Portfolio P has a standard deviation of 25 percent. c. Portfolio P has a beta of 1.2 . d. Statements a and c are correct. c. All of the statements above are correct. CAPM 2. The risk-free rate is 6 percent. Stock A has a beta of 1.0, while Stock B has a beta of 2.0 . The market risk premium (kMkBK) is positive. Which of the following statements is most correct? a. Stock B's required rate of return is twice that of Stock A. b. If Stock A's required return is 11 percent, the market risk premium is 5 percent. c. If the risk-free rate increases (but the market risk premium stays unchanged), Stock B 's required return will increase by more than Stock A's. d. Statements b and c are correct. e. All of the statements above are correct. SML 3. Which of the following statements is incorrect? a. The slope of the security market line is measured by beta. b. Two securities with the same stand-alone risk can have different betas. c. Company-specific risk can be diversified away. d. The market risk premium is affected by attitudes about risk. e. Higher beta stocks have a higher required return