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.Your portfolio consists of 50% A and 50% B.Which of the following statements is CORRECT?
A) The portfolio's expected return is 15%.
B) The portfolio's standard deviation is greater than 20%.
C) The portfolio's beta is greater than 1.2.
D) The portfolio's standard deviation is 20%.
E) The portfolio's beta is less than 1.2.

Question

Quizplus · Accepted Answer

The portfolio's expected return is a weighted average of the expected returns of the individual stocks, which in this case is 15% for both stocks A and B. Since the portfolio consists of 50% A and 50% B, the expected return of the portfolio remains 15%. The other options regarding standard deviation and beta cannot be determined as correct without specific calculations, which are not provided in the statement.

Stocks a and B Each Have an Expected Return of 15