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Stock A has an expected return of 12%, a beta of 1.2, and a standard deviation of 20%. Stock B has an expected return of
Stock A has an expected return of 12%, a beta of 1.2, and a standard deviation of 20%. Stock B has an expected return of 10%, a beta of 1.2, and a standard deviation of 15%. Portfolio AB has $900,000 invested in stock A and $300,000 invested in stock B. The correlation between the two stocks' returns is zero. Which of the following statements is correct assuming oth stocks have the same expected earnings? a. Portfolio AB's beta is less than 1.2 b. The stocks are not in equilibrium based on CAPM; if A is valued correctly, then B is overvalued. C. The stocks are not in equilibrium based on CAPM; if A is valued correctly, then B is undervalued. O d. Portfolio AB's expected return is 11.0%. Oe. Portfolio AB's standard deviation is 17.5%
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