Question
St Stock A has Stock A has an expected return of 10% and a standard deviation of 20%. Stock B has an expected return of
StStock A has Stock A has an expected return of 10% and a standard deviation of 20%. Stock B has an expected return of 13% and a standard deviation of 30%. The risk-free rate is 5% and the market risk premium, rM - rRF, is 6%. Assume that the market is in equilibrium. Portfolio AB has 50% invested in Stock A and 50% invested in Stock B. The returns of Stock A and Stock B are independent of one another, i.e., the correlation coefficient between them is zero. Which of the following statements is CORRECT?
| a. | Stock A's beta is 0.8333. |
| b. | Since the two stocks have zero correlation, Portfolio AB is riskless. |
| c. | Stock B's beta is 1.0000. |
| d. | Portfolio AB's required return is 11%. |
| e. | Portfolio AB's standard deviation is 25%. |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Port Infrastructure Finance
Authors: Hilde Meersman, Eddy Van De Voorde, Thierry Vanelslander
1st Edition
