Question Details

In a portfolio of three randomly selected stocks, which of the following could NOT be true 


1.	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?

a.	Portfolio P has a beta that is greater than 1.2.
b.	Portfolio P has a standard deviation that is greater than 25%.
c.	Portfolio P has an expected return that is less than 12%.
d.	Portfolio P has a standard deviation that is less than 25%.
e.	Portfolio P has a beta that is less than 1.2.
	2.	Stocks A, B, and C all have an expected return of 10% and a standard deviation of 25%.  Stocks A and B have returns that are independent of one another, i.e., their correlation coefficient, r, equals zero.  Stocks A and C have returns that are negatively correlated with one another, i.e., r is less than 0.  Portfolio AB is a portfolio with half of its money invested in Stock A and half in Stock B.  Portfolio AC is a portfolio with half of its money invested in Stock A and half invested in Stock C.  Which of the following statements is CORRECT?

a.	Portfolio AC has an expected return that is less than 10%.
b.	Portfolio AC has an expected return that is greater than 25%.
c.	Portfolio AB has a standard deviation that is greater than 25%.
d.	Portfolio AB has a standard deviation that is equal to 25%.
e.	Portfolio AC has a standard deviation that is less than 25%.
	3.	Stocks A and B each have an expected return of 15%, a standard deviation of 20%, and a beta of 1.2.  The returns on the two stocks have a correlation coefficient of +0.6.  You have a portfolio that consists of 50% A and 50% B.  Which of the following statements is CORRECT?

a.	The portfolio's beta is less than 1.2.
b.	The portfolio's expected return is 15%.
c.	The portfolio's standard deviation is greater than 20%.
d.	The portfolio's beta is greater than 1.2.
e.	The portfolio's standard deviation is 20%.
	4.	Stock A has a beta of 0.8, Stock B has a beta of 1.0, and Stock C has a beta of 1.2.  Portfolio P has 1/3 of its value invested in each stock.  Each stock has a standard deviation of 25%, and their returns are independent of one another, i.e., the correlation coefficients between each pair of stocks is zero.  Assuming the market is in equilibrium, which of the following statements is CORRECT?

a.	Portfolio P's expected return is greater than the expected return on Stock B.
b.	Portfolio P's expected return is equal to the expected return on Stock A.
c.	Portfolio P's expected return is less than the expected return on Stock B.
d.	Portfolio P's expected return is equal to the expected return on Stock B.
e.	Portfolio P's expected return is greater than the expected return on Stock C.
	
5.	In a portfolio of three randomly selected stocks, which of the following could NOT be true, i.e., which statement is false?

a.	The riskiness of the portfolio is less than the riskiness of each of the stocks if they were held in isolation.
b.	The riskiness of the portfolio is greater than the riskiness of one or two of the stocks.
c.	The beta of the portfolio is lower than the lowest of the three betas.
d.	The beta of the portfolio is higher than the highest of the three betas.
e.	None of the above statements is obviously false, because they all could be true, but not necessarily at the same time.




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