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Stocks A, B, and C all have an expected return of 10% and a standard deviation of 25%. Stocks A and B have returns that are INDEPENDENT of one another, i.e., their correlation coefficient, r, equals zero. Stocks A and C have returns that areNEGATIVELY CORRELATED with one another, i.e., r is less than 0. Portfolio AB is a portfolio with half of its money invested in Stock A and half in Stock B. Portfolio AC is a portfolio with half of its money invested in Stock A and half invested in Stock C. Which of the following statements is correct?

Portfolio AB has a standard deviation that is equal to 25%.

Portfolio AC has a standard deviation that is less than 25%.

Portfolio AB has a standard deviation that is greater than 25%.

Portfolio AC has an expected return that is greater than 25%.

Financial Management, Finance

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