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:

Multiple-choice Question

A question format that offers several answers from which the respondent must choose the correct one.

Likert-type Question

A survey question format that uses a 5 or 7-point scale for respondents to express agreement or disagreement with a statement.

Semantic Differential Question

A type of survey question that features a scale and is used to gather information on the connotative meaning of objects, events, or concepts.

Longitudinal Studies

Studies that track people’s changes in knowledge, attitude, or behavior over time.