Question

Stocks A and B each have an expected return of 12%, a beta of 1.2, and a standard deviation of 25%. The returns on the two stocks have a correlation of 0.6. Portfolio P has 50% in Stock A and 50% in Stock B. Which of the following statements is CORRECT? A. Portfolio P has a standard deviation that is less than 25%. B. Portfolio P has an expected return that is less than 12%. C. Portfolio P has a standard deviation that is greater than 25%. D. Portfolio P has a beta that is greater than 1.2.E. Portfolio P has a beta that is less than 1.2.

Answer 1

Answer:

A. Portfolio P has a standard deviation that is less than 25%.

Explanation:

Stock A and Stock B both has standard deviation of 25% and correlation between two stock is 0.6. since, correlation of stock return is 0.6, so Portfolio P has a standard deviation that is less than 25%..

Therefore, option (A) is correct answer.