Asked by Latroy Mayfield on Jul 15, 2024
Verified
Stocks A and B each have an expected return of 12%,a beta of 1.2,and a standard deviation of 25%.The returns on the two stocks have a correlation of 0.6.Portfolio P has 50% in Stock A and 50% in Stock B.Which of the following statements is correct?
A) Portfolio P has a beta that is greater than 1.2.
B) Portfolio P has a standard deviation that is greater than 25%.
C) Portfolio P has a standard deviation that is less than 25%.
D) Portfolio P has a beta that is less than 1.2.
Expected Return
The weighted average of all possible returns from an investment, accounting for the probability of each outcome.
Beta
An indicator of how much a stock's price fluctuates compared to the entire market, showing the level of risk associated with its returns.
Standard Deviation
A statistical measure that quantifies the amount of variation or dispersion of a set of values, commonly used in finance to assess the risk associated with a particular investment.
- Apply the techniques of diversifying assets to understand its consequence on lessening risk.
- Discern between the characteristics of systematic (or market) risk and those of unsystematic (or diversifiable) risk.
Verified Answer
Learning Objectives
- Apply the techniques of diversifying assets to understand its consequence on lessening risk.
- Discern between the characteristics of systematic (or market) risk and those of unsystematic (or diversifiable) risk.
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