Your 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,r_XY,is zero.Which statement best describes the characteristics of your two-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%.

Question

Quizplus · Accepted Answer

Since both stocks have a beta of 1.6 and an expected return of 15%, and the portfolio is equally weighted between them, the portfolio will also have a beta of 1.6 and an expected return of 15%. The correlation coefficient being zero indicates that the stocks' returns are independent, but this does not affect the portfolio's beta or expected return directly.

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