Which of the Following Statements Is Most Correct

question 62

Multiple Choice

Which of the following statements is most correct?

• A) The beta coefficient of a stock is normally found by running a regression of past returns on the stock against past returns on a stock market index. One could also construct a scatter diagram of returns on the stock versus those on the market, estimate the slope of the line of best fit, and use it as beta.
• B) It is theoretically possible for a stock to have a beta of 1.0. If a stock did have a beta of 1.0, then, at least in theory, its required rate of return would be equal to the riskless (default-free) rate of return, rRF.
• C) If you found a stock with a zero beta and held it as the only stock in your portfolio, you would by definition have a riskless portfolio. Your 1-stock portfolio would be even less risky if the stock had a negative beta.
• D) The beta of a portfolio of stocks is always larger than the betas of any of the individual stocks.
• E) All of the statements above are true.

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Definitions:

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