49.Inflation, recession, and high interest rates are economic events that are best characterized as being A)systematic risk factors that can be diversified away.B)company-specific risk factors that can be diversified away.C)among the factors that are responsible for market risk.D)risks that are beyond the control of investors and thus should not be considered by security analysts or portfolio managers. 50.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? 6
51.Consider the following information for three stocks, A, B, and C. The correlations between stocks' returns are all between 0 and 1. StockExpected ReturnStandard DeviationBetaA12%20%1.0B10%10%1.0C15%12%1.4Portfolio ABhas half of its funds invested in Stock A and half in Stock B. Portfolio BChas half of its funds invested in Stock B and half in Stock C. Portfolio ABChas one third of its funds invested in each of the three stocks. E(Rm) = 12% and Rf = 5%. 52.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 is zero. Which of the following statements best describes the characteristics of your 2-stock portfolio? 53.Which of the following statements best describes what you should expect if you randomly select stocks and add them to your portfolio? A)Adding more such stocks will reduce the portfolio's unsystematic, or diversifiable, risk.B)Adding more such stocks will increase the portfolio's expected rate of return.C)Adding more such stocks will reduce the portfolio's beta coefficient and thus its systematic risk.D)Adding more such stocks will have no effect on the portfolio's risk.E) Adding more such stocks will reduce the portfolio's market risk but not its unsystematic risk.