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 is a portfolio with 50% invested in Stock A and 50% invested in B. Which of the following statements is CORRECT?

a. Portfolio P has a standard deviation of 25% and a beta of 1.0.
b. 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.
c. Portfolio P has more market risk than Stock A but less market risk than Stock B.
Stock A should have a higher expected return than Stock B as viewed by the marginal investor.
e. Portfolio P has a coefficient of variation equal to 2.5.

Solution Preview

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 is a portfolio with 50% invested in Stock A and 50% invested in B. Which of the following statements is CORRECT?

a. Portfolio P has a standard deviation of 25% and a beta of 1.0.
b. ...

Solution Summary

Answers a multiple choice question on standard deviation and expected return of stocks and portfolio.

... 10.6 Suppose the expected returns and standard deviations of stocks A and B are E(RA) = 0.17, E ... a. Calculate the expected return and standard deviation of a ...

... security A? b) What is the expected return for security ... A? d) What is the standard deviation for Security ... that you have calculated the standard deviations of A ...

... Suppose the expected returns and standard deviations of stocks A and B are E(RA)= 0.17, E(RB ... a. Calculate the expected return and standard deviation of a ...

Calculating the standard deviation,expected return,PV & PMT. ... XYZ is as shown below: Return Probability - 0.1 ... What is the standard deviation for the XYZ returns? ...

... The returns for the portfolio are Probability Return 0.65 ... 0.75 X 0.20 = 0.175 The expected return = 0.65X0 ... 0.35X0.175 = 12.563% Standard deviation = Square root ...

... a) create a portfolio with an expected return of 24% if the returns of the two assets are perfectly correlated and finds the standard deviation of that ...

Important information about Expected Return and Standard Deviation of a Portfolio. Stock A has an expected return of 12% and a standard deviation of 40%. ...

1. Suppose the expected returns and standard deviations of stocks A and B are E(RA) = 0.17, E ... a. Calculate the expected return and standard deviation of a ...