Author Question: Consider the following information for three stocks, A, B, and C, and portfolios of these stocks. ... (Read 12 times)

xsk4r3kr0w · **on:** Aug 7, 2023

Consider the following information for three stocks, A, B, and C, and portfolios of these stocks. The stocks’ returns are positively but not perfectly positively correlated with one another, i.e., the correlation coefficients are all between 0 and 1.


	Expected	Standard
Stock	Return	Deviation	Beta
Stock A	10%	30%	1.0
Stock B	10	20	1.0
Stock C	14	14	1.6

Portfolio AB has half of its funds invested in Stock A and half in Stock B. Portfolio ABC has one-third of its funds invested in each of the three stocks. The risk-free rate is 6%, and the market is in equilibrium, so required returns equal expected returns. Which of the following statements is correct?

◦

Portfolio AB has a standard deviation of 30%.

◦

Portfolio AB’s coefficient of variation is greater than 3.0.

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Portfolio AB’s required return is equal to the required return on Stock A.

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Portfolio ABC’s expected return is 12%.

queenBea90 · **Reply #1 on:** Aug 7, 2023

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