Stocks A and B each have an expected return of 15%, a standard deviation of 20%, and a beta of 1.2. The returns on the two stocks have a correlation coefficient of +0.6. You have a portfolio that consists of 50% A and 50% B. Which of the following statements is CORRECT?
A) The portfolio's beta is less than 1.2.
B) The portfolio's expected return is 15%.
C) The portfolio's standard deviation is greater than 20%.
D) The portfolio's beta is greater than 1.2.
E) The portfolio's standard deviation is 20%.

Question

Stocks A and B each have an expected return of 15%, a standard deviation of 20%, and a beta of 1.2. The returns on the two stocks have a correlation coefficient of +0.6. You have a portfolio that consists of 50% A and 50% B. Which of the following statements is CORRECT?
A)	The portfolio's beta is less than 1.2.
B)	The portfolio's expected return is 15%.
C)	The portfolio's standard deviation is greater than 20%.
D)	The portfolio's beta is greater than 1.2.
E)	The portfolio's standard deviation is 20%.

Quizplus · Accepted Answer

The Answer of Stocks A and B each have an expected return of 15%, a standard deviation of 20%, and a beta of 1.2. The returns on the two stocks have a correlation coefficient of +0.6. You have a portfolio that consists of 50% A and 50% B. Which of the following statements is CORRECT?
A)	The portfolio's beta is less than 1.2.
B)	The portfolio's expected return is 15%.
C)	The portfolio's standard deviation is greater than 20%.
D)	The portfolio's beta is greater than 1.2.
E)	The portfolio's standard deviation is 20%.

Stocks a and B Each Have an Expected Return of 15