Which of the Statements Is Most Correct

question 17

Multiple Choice

Which of the statements is most correct?

• A)Suppose the returns on two stocks are negatively correlated.One has a beta of 1.2 as determined in a regression analysis, while the other has a beta of −0.6.The returns on the stock with the negative beta will be negatively correlated with returns on most other stocks in the market.
• B)Suppose you are managing a stock portfolio, and you have information which leads you to believe that the stock market is likely to be very strong in the immediate future, i.e., you are confident that the market is about to rise sharply.You should sell your high beta stocks and buy low beta stocks in order to take advantage of the expected market move.
• C)In a recent issue, The Wall Street Journal ran a story on a company named Collections Inc., which is in the business of collecting past due accounts for other companies, i.e., it is a collections agency.According to the Journal, Collections' revenues, profits, and stock price tend to rise during recessions.This suggests that Collection Inc.'s beta should be quite high, say 2.0, because it does so much better than most companies when the economy is weak.
• D)Statements a and b are both true.
• E)Statements a and c are both true.

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Definitions:

Jobs

Specific tasks or projects within an organization, often defined by a set of responsibilities or activities.

Meals

Food services provided, often in contexts such as schools, hospitals, or large events, but can also refer to the food products themselves.

Budgeting Purposes

The process of creating a plan to spend your money, outlining an organization's financial and operational goals.

Fixed Cost

Costs that do not change with the level of output produced, such as rent, salaries, and insurance.