Stock A's Beta Is 1

question 3

Multiple Choice

Stock A's beta is 1.5 and Stock B's beta is 0.5. Which of the following statements must be true about these securities? (Assume market equilibrium.)

• A) When held in isolation, Stock A has greater risk than Stock B.
• B) Stock B must be a more desirable addition to a portfolio than Stock A.
• C) Stock A must be a more desirable addition to a portfolio than Stock B.
• D) The expected return on Stock A should be greater than that on Stock B.
• E) The expected return on Stock B should be greater than that on Stock A.

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