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Business, 31.10.2019 00:31 jude3412

Stock a has an expected return of 12%, a beta of 1.2, and a standard deviation of 20%. stock b also has a beta of 1.2, but its expected return is 10% and its standard deviation is 15%. portfolio ab has $300,000 invested in stock a and $100,000 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? a. the stocks are not in equilibrium based on the capm; if a is valued correctly, then b is overvalued. b. the stocks are not in equilibrium based on the capm; if a is valued correctly, then b is undervalued. c. portfolio ab's expected return is 11.0%.d. portfolio ab's beta is less than 1.2.e. portfolio ab's standard deviation is 17.5%.

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