Which of the Following Statements Is CORRECT

question 60

Multiple Choice

Which of the following statements is CORRECT?

• A) If you found a stock with a zero historical beta and held it as the only stock in your portfolio, you would by definition have a riskless portfolio.
• B) The beta coefficient of a stock is normally found by regressing past returns on a stock against past market returns. One could also construct a scatter diagram of returns on the stock versus those on the market, estimate the slope of the line of best fit, and use it as beta. However, this historical beta may differ from the beta that exists in the future.
• C) The beta of a portfolio of stocks is always larger than the betas of any of the individual stocks.
• D) It is theoretically possible for a stock to have a beta of 1.0. If a stock did have a beta of 1.0, then, at least in theory, its required rate of return would be equal to the risk-free (default-free) rate of return, rRF.
• E) The beta of a portfolio of stocks is always smaller than the betas of any of the individual stocks.

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Definitions:

Price Floor

A government- or authority-imposed minimum price that can be charged for a good or service, intended to prevent prices from falling too low.

Equilibrium Price

The price at which the quantity of a good or service demanded by consumers matches the quantity supplied by producers, resulting in no surplus or shortage.

Market Price

The actual selling price of a good or service in the market at which it can be bought or sold.

Surplus

The amount by which quantity supplied exceeds quantity demanded, often resulting in excess goods and a decrease in prices.