portfolio consists of $50,000 invested in Stock X and $50,000 invested in Stock Y.Both stocks have an expected return of 15%, betas of 1.6, and standard deviations of 30%.The returns of the two stocks are independent, so the correlation coefficient between them, rXY, is zero.Which of the following statements best describes the characteristics of your 2-stock portfolio?
A)Your portfolio has a standard deviation of 30%, and its expected return is 15%.
B)Your portfolio has a standard deviation less than 30%, and its beta is greater than 1.6.
C)Your portfolio has a beta equal to 1.6, and its expected return is 15%.
D)Your portfolio has a beta greater than 1.6, and its expected return is greater than 15%.
E)Your portfolio has a standard deviation greater than 30% and a beta equal to 1.6.

Question

Quizplus · Accepted Answer

The portfolio's beta is the weighted average of the individual betas, which is 1.6. The expected return is also the weighted average of the individual expected returns, which is 15%. The standard deviation is less than 30% due to diversification, as the correlation is zero.

Portfolio Consists of $50,000 Invested in Stock X and $50,000