21. Stocks A and B each have an expected return of 12%, a beta of 1.2, and a sta

Question

21.

Stocks A and B each have an expected return of 12%, a beta of 1.2, and a standard deviation of 25%. The returns on the two stocks have a correlation of +0.6. Portfolio P has 50% in Stock A and 50% in Stock B. Which of the following statements is CORRECT?

a. Portfolio P has a beta that is less than 1.2. b. Portfolio P has a beta that is greater than 1.2. c. Portfolio P has a standard deviation that is greater than 25%. d. Portfolio P has an expected return that is less than 12%. e. Portfolio P has a standard deviation that is less than 25%

Explanation / Answer

correct option is "E" -portfolio P has a standard deviation that is less than 25%.

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