A Friend Tips You Off on a Hot Stock: Sure

question 37

Multiple Choice

A friend tips you off on a hot stock: Sure Thing Mines Ltd. You only have $10,000 to invest but you want to invest more. Assume that you can borrow an additional $5,000 by short-selling the risk free asset (issuing T-Bills) . You purchase $15,000 worth of shares in Sure Thing Mines Ltd. The expected returns and standard deviations of the two assets are outlined in the table below:
$$\begin{array} { | c | c | c | } \hline \text { Asset } & \begin{array} { c } \text { Expected } \\\text { Return }\end{array} & \text { Beta } \\\hline \text { T-Bills } & 5.5 \% & 0 \\\hline \begin{array} { c } \text { Sure Thing } \\\text { Mines }\end{array} & 15 \% & 1.70 \\\hline\end{array}$$ What is the beta of the portfolio?

• A)1.50
• B)1.70
• C)2.50
• D)2.55
• E)2.70

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Definitions:

Monopolistic Competition

is a market structure characterized by many firms selling products that are similar but not identical, allowing for competition based on quality, price, and marketing.

Quantity of Output

The total amount of goods or services produced by a company or an economy in a given period.

Monopolistically Competitive Firm

A firm in a monopolistic competition operates in a market structure where many companies sell products that are similar but not identical, allowing for some degree of market power.

Cartel Production Quota

The allocated amount of production assigned to each member of a cartel, aiming to control supply and influence market prices.