Which of the Following Statements Is CORRECT

question 121

Multiple Choice

Which of the following statements is CORRECT?

• A) 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.
• B) Suppose the returns on two stocks are negatively correlated.One has a beta of 1.2 as determined in a regression analysis using data for the last 5 years,while the other has a beta of -0.6.The returns on the stock with the negative beta must have been negatively correlated with returns on most other stocks during that 5-year period.
• C) Suppose you are managing a stock portfolio,and you have information that leads you to believe the stock market is likely to be very strong in the immediate future.That is,you are convinced 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.
• D) You think that investor sentiment is about to change,and investors are about to become more risk averse.This suggests that you should re-balance your portfolio to include more high-beta stocks.
• E) If the market risk premium remains constant,but the risk-free rate declines,then the required returns on low-beta stocks will rise while those on high-beta stocks will decline.

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Definitions:

SRS

Simple Random Sample, which is a subset of individuals chosen from a larger set where each individual has the same probability of being selected.

P-value

The probability of obtaining test results at least as extreme as the ones observed during the test, assuming that the null hypothesis is correct.

P-value

A statistical measure that helps to determine the significance of results, indicating the probability of observing the results given that the null hypothesis is true.

Null Hypothesis

Null hypothesis refers to a statement used in statistics that suggests no statistical significance exists in a set of given observations.