Question
Stocks A and B both have an expected return of 10% and a standard deviation of returns of 25%. Stock A has a beta of
Stocks A and B both have an expected return of 10% and a standard deviation of returns of 25%. Stock A has a beta of 0.8 and Stock B has a beta of 1.2. The correlation coefficient, r, between the two stocks is 0.6. Portfolio P has 50% invested in Stock A and 50% invested in B. Which of the following statements is CORRECT?
Portfolio P has a standard deviation of 25% and a beta of 1.0. | ||
Based on the information we are given, and assuming those are the views of the marginal investor, it is apparent that the two stocks are in equilibrium. | ||
Portfolio P has more market risk than Stock A but less market risk than B. | ||
Stock A should have a higher expected return than Stock B as viewed by the marginal investor. | ||
Portfolio P has a coefficient of variation equal to 2.5. |
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