Stocks a and b are quite similiar.each has an expected return of 12% a beta of 1

Question

Stocks a and b are quite similiar.each has 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 stovk a and 50% in stock b. Which of the followng statements if coorect.

A.portfolio p has a standard deviation that is greater than 25%

B.porfolio p has an expected return that is less than 12%

C.portfolio p hasa standard deviation that is less than 25%

D.porfolio p has a beta that is less than 1.2

E.portfolio p has a beta that is greater than 1.2

Explanation / Answer

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

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