Stock A has a beta of 1.2 and a standard deviation of 20%. Stock B has a beta of 0.8 and a standard deviation of 25%. Portfolio P has $200,000 consisting of $100,000 invested in Stock A and $100,000 in Stock B. Which of the following statements is CORRECT? (Assume that the stocks are in equilibrium.)
A. Stock A's returns are less highly correlated with the returns on most other stocks than are B's returns.
B. Stock B has a higher required rate of return than Stock A.
C. Portfolio P has a standard deviation of 22.5%.
D. More information is needed to determine the portfolio's beta.
E. Portfolio P has a beta of 1.0.
Answer: E
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