Portfolio P has $200,000 consisting of $100,000 invested in Stock A and $100,000 in Stock B. Stock A has a beta of 1.2 and a standard deviation of 20%. Stock B has a beta of 0.8 and a standard deviation of 25%. Which of the following statements is CORRECTσ (Assume that the stocks are in equilibrium.)
A) stock b has a higher required rate of return than stock a.
B) portfolio p has a standard deviation of 22.5%.
C) more information is needed to determine the portfolio's beta.
D) portfolio p has a beta of 1.0.
E) stock a's returns are less highly correlated with the returns on most other stocks than are b's returns.

Question

Quizplus · Accepted Answer

The portfolio beta is the weighted average of the individual betas: (0.5 * 1.2) + (0.5 * 0.8) = 1.0.

Portfolio P Has $200,000 Consisting of $100,000 Invested in Stock