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badd99 badd99
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Stock A has an expected return of 11%, a beta of 1.5, and a standard deviation of 22%. Stock B also has a beta of 1.5, an expected return of 17%, and a standard deviation of 13%. Portfolio AB has $300,000 invested in Stock A and $200,000 invested in Stock B. The correlation between the two stocks’ returns is zero (that is, rA,B= 0). Which of the following statements is correct?


▸

Portfolio AB’s beta is less than 1.5.



▸

Portfolio AB’s expected return is 14%.



▸

The stocks are not in equilibrium based on the CAPM; if A is valued correctly, then B is overvalued.



▸

The stocks are not in equilibrium based on the CAPM; if A is valued correctly, then B is undervalued.

Textbook 
Financial Management: Theory and Practice

Financial Management: Theory and Practice


Edition: 4th
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angfuciousangfucious
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badd99 Author
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A year ago
This helped my grade so much Perfect
Marcie D
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I appreciate what you did here, answered it right Smiling Face with Open Mouth
nicolepope23
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2 hours ago
Thank you, thank you, thank you!
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