Stocks A and B each have an expected return of 15%, a standard deviation of 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 beta is greater than 1.2.











c.

The portfolio's expected return is 15%.











d.

The portfolio's standard deviation is greater than 20%.











e.

The portfolio's standard deviation is 20%.

Explanation / Answer

c. The portfolio's expected return is 15%.

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