You Have the Following Data on (1) the Average Annual

question 16

Multiple Choice

You have the following data on (1) the average annual returns of the market for the past 5 years and (2) similar information on Stocks A and B.Which of the possible answers best describes the historical betas for A and B? $$\begin{array} { c r r c } \text { Years } & \text { Market } & \text { Stock A } & \text { Stock B } \\\hline 1 & 0.03 & 0.16 & 0.05 \\2 & -0.05 & 0.20 & 0.05 \\3 & 0.01 & 0.18 & 0.05 \\4 & -0.10 & 0.25 & 0.05 \\5 & 0.06 & 0.14 & 0.05\end{array}$$

• A) b_A > +1; b_B = 0.
• B) b_A = 0; b_B = ?1.
• C) b_A < 0; b_B = 0.
• D) b_A < ?1; b_B = 1.
• E) b_A > 0; b_B = 1.

Understand the basic function of profits and losses in allocating resources within an economy.

Grasp the factors affecting the supply and demand for loanable funds.

Recognize the role of risk in economic decisions and the insurance mechanism.

Understand the importance and function of interest rates in financial transactions.

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Definitions:

Enforceable

A term describing a contract or legal obligation that is legally binding and can be upheld in court.

Junk Bonds

High-risk, high-yield bonds issued by companies considered to be at greater risk of default.

Government Bonds

Debt securities issued by a government to finance its borrowing requirements, offering a fixed or variable interest rate payable to holders.

Dividends

Payments made by a corporation to its shareholder members from its profits or reserves.