Quiz Ch 08 – Portfolio Analysis with Independent Stocks

Fundamentals of Financial Management, Concise

Brigham and Houston

09th Edition

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Given Stock A (10% expected return, 20% standard deviation) and Stock B (13% expected return, 30% standard deviation), with a 5% risk-free rate and a 6% market risk premium, and assuming equilibrium, Portfolio AB is divided 50-50. Both stocks have independent returns (zero correlation). Which statement is TRUE?

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