stock A has a beta of 0.8, stock b has a beta of 1.0 and stock c has a beta of 1
ID: 2629616 • Letter: S
Question
stock A has a beta of 0.8, stock b has a beta of 1.0 and stock c has a beta of 1.2. Portfolio P has 1/3 of it value invested in each of these stocks. Each stock has a standard deviation of 25% and their returns are independent of one another i.e the correlation coefficients between each pair of stock is zero. Assuming the market is in equilibrium, which of the following statements is correct?
a. portfolio P's expected return is greater than the expected return on stock c
b. portfolio P's expected return is greater than the expected return on stock b
c. portfolios P's expected return is equal to the expected return on stock A
d. portfolios P's expected return is less than the expected return on stock b
e.portfolios P's expected return is equal to the expected return on stock b
Explanation / Answer
correct option is E
e.portfolios P's expected return is equal to the expected return on stock b
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