Question
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
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, r M - r RF, 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?
| Stock As beta is 0.8333. | ||
| Since the two stocks have zero correlation, Portfolio AB is riskless. | ||
| Stock Bs beta is 1.0000. | ||
| Portfolio ABs required return is 11%. | ||
| Portfolio ABs standard deviation is 25%. |
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Introduction To Institutions Management And Investments
Authors: Herbert Mayo
10th International Edition
1111820643, 9781111820640
