Stock a Has a Beta of 1

question 129

Multiple Choice

Stock A has a beta of 1.2 and a standard deviation of 20%.Stock B has a beta of 0.8 and a standard deviation of 25%.Portfolio P has $200,000 consisting of $100,000 invested in Stock A and $100,000 in Stock B.Which of the following statements is CORRECT? (Assume that the stocks are in equilibrium. )

• A) Stock A's returns are less highly correlated with the returns on most other stocks than are B's returns.
• B) Stock B has a higher required rate of return than Stock A.
• C) Portfolio P has a standard deviation of 22.5%.
• D) More information is needed to determine the portfolio's beta.
• E) Portfolio P has a beta of 1.0.

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Definitions:

Inherently Dangerous

Activities or conditions that naturally involve a risk of injury or harm without needing negligence to be proved for liability.

Express Assumption

A clearly stated acceptance of risk or conditions as part of an agreement or contract.

Written Contract

A legally binding agreement between two or more parties that is expressed in written form.

Modified Comparative Negligence

A legal doctrine under tort law that allows for the plaintiff to recover damages even if they are partially at fault, but only if their responsibility is below a certain percentage.