Stock a Has a Beta of 1

question 37

Multiple Choice

Stock A has a beta of 1.5 and Stock B has a beta of 0.5. Which of the following statements must be true about these securities? (Assume the market is in equilibrium.)

• A) When held in isolation, Stock A has greater risk than Stock B.
• B) Stock B would be a more desirable addition to a portfolio than Stock A.
• C) Stock A would be a more desirable addition to a portfolio than Stock B.
• D) The expected return on Stock A will be greater than that on Stock B.
• E) The expected return on Stock B will be greater than that on Stock A.

---

Definitions:

Policies and Procedures

Established guidelines and methods of operation adopted by an organization to ensure consistency and compliance with standards and regulations.

Promote Efficient Operations

Strategies or practices implemented within an organization to enhance productivity and minimize waste.

Days' Sales

Days' sales, often referred to as days sales outstanding (DSO), measures the average number of days it takes a company to collect payment after a sale has been made.

Raw Materials Inventory

The total cost of all the materials that are used in the production of finished goods that have not yet been used.