Assume that the market is in equilibrium and that Portfolio AB has 50% invested in Stock A and 50% invested in Stock B.Stock A has an expected return of 10% and a standard deviation of 20%.Stock B has an expected return of 13% and a standard deviation of 30%.The risk-free rate is 5% and the market risk premium, rM - rRF, is 6%.The returns of Stock A and Stock B are independent of one another, i.e., the correlation coefficient between them is zero.Which of the following statements is CORRECT?

Question

Quizplus · Accepted Answer

e is correctrue.Stock A's required return is 10% = 5% + b(6%), so b = 5%/6% = 0.83333.

Assume That the Market Is in Equilibrium and That Portfolio