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17.
Stock X has a beta of 0.7 and Stock Y has a beta of 1.3. The standard deviation of each stock's
returns is 20%. The stocks' returns are independent of each other, i.e., the correlation coefficient,
r, between them is zero. Portfolio P consists of 50% Stock X and 50% Stock Y. Given this
information, which of the following statements is CORRECT?
A)
Portfolio P has a beta of 1.0 and a required return that is equal to the riskless rate, r
RF
.
B)
The required return on Portfolio P is the same as the required return on the market (r
M
).
C)
Portfolio P has a beta of 0.7.
D)
Portfolio P has a standard deviation of 20%.
E)
The required return on Portfolio P is equal to the market risk premium (r
M

r
RF
).
Points Earned:
0.0/5.0
Correct Answer(s):
B
18.
Stock A has a beta of 0.8 and Stock B has a beta of 1.2. 50% of Portfolio P is invested in Stock A
and 50% is invested in Stock B. If the market risk premium (r
M

r
RF
) were to increase but the
riskfree rate (r
RF
) remained constant, which of the following would occur?
A)
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 Spring '09
 SHMIDL
 Finance

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