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?

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Quizplus · Accepted Answer

The portfolio's expected return is calculated as the weighted average of the expected returns of the individual stocks. Since both stocks A and B have an expected return of 15%, the portfolio's expected return, consisting of 50% A and 50% B, is also 15%. The correlation coefficient, standard deviation, and beta of individual stocks affect the portfolio's risk characteristics but do not change this basic calculation of expected return.

Stocks a and B Each Have an Expected Return of 15