Which of the following statements is CORRECT? (Points : 5) The typical R2 for a

Question

Which of the following statements is CORRECT? (Points : 5)
The typical R2 for a stock is about 0.3 and the typical R2 for a portfolio is also about 0.3.
The typical R2 for a stock is about 0.94 and the typical R2 for a portfolio is about 0.6.
The typical R2 for a stock is about 0.3 and the typical R2 for a large portfolio is about 0.94.
The typical R2 for a stock is about 0.94 and the typical R2 for a portfolio is also about 0.94.
The typical R2 for a stock is about 0.6 and the typical R2 for a portfolio is also about 0.6.

Assume an economy in which there are three securities: Stock A with rA = 10% and A = 10%; Stock B with rB = 15% and B = 20%; and a riskless asset with rRF = 7%. Stocks A and B are uncorrelated (rAB = 0). Which of the following statements is most CORRECT? (Points : 5)
The expected return on the investor's portfolio will probably have an expected return that is somewhat above 15% and a standard deviation (SD) of approximately 20%.
The expected return on the investor's portfolio will probably have an expected return that is somewhat below 10% and a standard deviation (SD) of approximately 10%.
The expected return on the investor's portfolio will probably have an expected return that is somewhat below 15% and a standard deviation (SD) that is between 10% and 20%.
The investor's risk/return indifference curve will be tangent to the CML at a point where the expected return is in the range of 7% to 10%.
Since the two stocks have a zero correlation coefficient, the investor can form a riskless portfolio whose expected return is in the range of 10% to 15%

Explanation / Answer

Which of the following statements is CORRECT? (Points : 5)
The typical R2 for a stock is about 0.3 and the typical R2 for a portfolio is also about 0.3.
The typical R2 for a stock is about 0.94 and the typical R2 for a portfolio is about 0.6.
The typical R2 for a stock is about 0.3 and the typical R2 for a large portfolio is about 0.94.
The typical R2 for a stock is about 0.94 and the typical R2 for a portfolio is also about 0.94.
The typical R2 for a stock is about 0.6 and the typical R2 for a portfolio is also about 0.6.

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Assume an economy in which there are three securities: Stock A with rA = 10% and A = 10%; Stock B with rB = 15% and B = 20%; and a riskless asset with rRF = 7%. Stocks A and B are uncorrelated (rAB = 0). Which of the following statements is most CORRECT? (Points : 5)

The expected return on the investor's portfolio will probably have an expected return that is somewhat above 15% and a standard deviation (SD) of approximately 20%.

The expected return on the investor's portfolio will probably have an expected return that is somewhat below 10% and a standard deviation (SD) of approximately 10%.

The expected return on the investor's portfolio will probably have an expected return that is somewhat below 15% and a standard deviation (SD) that is between 10% and 20%.

The investor's risk/return indifference curve will be tangent to the CML at a point where the expected return is in the range of 7% to 10%.

Since the two stocks have a zero correlation coefficient, the investor can form a riskless portfolio whose expected return is in the range of 10% to 15%

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