Which of the Following Statements Is Most Correct

question 48

Multiple Choice

Which of the following 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) Collections Inc. is in the business of collecting past-due accounts for other companies, i.e., it is a collection agency. Collections' revenues, profits, and stock price tend to rise during recessions. This suggests that Collections Inc.'s beta should be quite high, say 2.0, because it does so much better than most other companies when the economy is weak.
• D) Statements a and b are true.
• E) Statements a and c are true.

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Definitions:

Forests

Large areas dominated by trees and undergrowth, providing habitat for biodiversity and playing critical roles in the Earth's ecosystem.

Seed-tree Cutting

A forestry technique that involves leaving a few seed-producing trees standing to regenerate the forest.

Harvested

The process of gathering mature crops from the fields or collecting the elements of a natural resource for human use.

Regenerate

To renew or restore a depleted or damaged system, such as a forest or urban area, often used in the context of ecological sustainability.