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Stock/portfolio problem

Your portfolio consists of $50,000 invested in Stock X and $50,000 invested in Stock Y. Both stocks have an expected return of 15%, a beta of 1.6, and a standard deviation of 30%. The returns of the two stocks are independent, so the correlation coefficient between them, rxy, is zero. Which of the following statements best describes the characteristics of your portfolio?

A. Your portfolio has a beta equal to 1.6 and its expected return is 15%.
B. Your portfolio has a standard deviation of 30% and its expected return is 15%.
C. Your portfolio has a standard deviation less than 30% and its beta is greater than 1.6.
D. Your portfolio has a standard deviation greater than 30% and a beta equal to 1.6.
E. Your portfolio has a beta greater than 1.6 and an expected return greater than 15%.

Solution Preview

Your portfolio consists of $50,000 invested in Stock X and $50,000 invested in Stock Y. Both stocks have an expected return of 15%, a beta of 1.6, and a standard deviation of 30%. The returns of the two stocks are independent, so the correlation coefficient between them, rxy, is zero. Which of the following statements ...

Solution Summary

This solution is comprised of a detailed explanation to answer which of the following statements best describes the characteristics of your portfolio.

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