Stock A has a beta of 1.2 and a standard deviation of 20% stock B has a beta of

Question

Stock A has a beta of 1.2 and a standard deviation of 20% stock B has a beta of 0.8 and staderd deviation of %25 .Protfolio P has $200,000 consisting of $100,000 invested in stock A and $100,000 in stock B . which of the folloing statement is Correct ? ( Assume that the stocks are in equilibrium )

1) Stock A's return are less highly correlated with the return on most other stocks than B's return

2) Stock B has a higher required rate of return than stock A

3) Porfolio P has a standard deviation of 22.5%

4) More information is needed to determine the protfolio's beta

5) Protfolio P has a beta of 1.0

Explanation / Answer

POrtfolio beta is weighted average beta of individula stocks of portfolio

So, Portfolio Beta = BetaA*W1 + BetaB * W2

= 1.20*100000/200000 + 0.80* 100000/200000

= 1.00

Ans is 5) Portfolio P nhas a beta of 1.0

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