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# Answer to Question #6128 in Economics of Enterprise for Lamarcus Streeter

Question #6128
3. Stock X has a beta of 0.7 and Stock Y has a beta of 1.3. The standard deviation of each stock&#039;s returns is 20%. The stocks&#039; returns are independent of each other, i.e., the correlation coefficient, r, between them is zero. Portfolio P consists of 50% X and 50% Y. Given this information, which of the following statements is CORRECT? Explain. a. Portfolio P has a standard deviation of 20%. b. The required return on Portfolio P is equal to the market risk premium (rM &minus; rRF). c. Portfolio P has a beta of 0.7. d. Portfolio P has a beta of 1.0 and a required return that is equal to the riskless rate, rRF. e. Portfolio P has the same required return as the market (rM).
1
2012-01-27T08:30:28-0500
b. The required return on Portfolio P is equal to the market risk premium (rM &minus;
rRF).
Because the average Beta will be (1.3 + 0.7)/2 = 1, Return = Beta*(rM &minus; rRF)

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