Question: Stocks Expected return Standard deviation Prince 5% 12% Lu 9% 8% The Capital Asset Pricing Model (CAPM) applies. The risk free rate is equal to

Stocks Expected return Standard deviation

Prince 5% 12%

Lu 9% 8%

The Capital Asset Pricing Model (CAPM) applies. The risk free rate is equal to 2%. The expected return on the market portfolio equals 7%. The two stocks are imperfectly correlated. Which statement is false?

A) Lu stock exhibits more unsystematic risk than Prince stock.

B) The beta of an equally weighted portfolio of Lu and Prince is 1.

C) The standard deviation of an equally weighted portfolio of Lu and Prince is smaller than 10%.

D) The beta of Prince stock is lower than the beta of Lu stock

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