Question

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, rXY, is zero. Which of the following statements best describes the characteristics of your 2-stock portfolio?

a. Your portfolio has a beta greater than 1.6, and its expected return is greater than 15%.b. Your portfolio has a beta equal to 1.6, and its expected return is 15%.c. Your portfolio has a standard deviation of 30%, and its expected return is 15%.d. Your portfolio has a standard deviation less than 30%, and its beta is greater than 1.6.e. Your portfolio has a standard deviation greater than 30%, and a beta equal to 1.6.

Answer 1

b. Your portfolio has a beta equal to 1.6, and its expected return is 15%

Step-by-step explanation:

when a portfolio is given, there exist the posibility to agregate the different calculations made, this is possible using the weights of the different assets whose are part of the portfolio, so in this specifinx example the beta portfolios is calculated as 1.6*50%+1.6*50%=1.6 and the expected return is calculated using the same logic 15%*50%+15%*50%. it does not apply for deviation of the portfolio, at this point is important to see that as there is not correlation coeficient, so there will no be calculated the covariance, so at the end the standar deviation aggregated is 0%