Which of the Following Statements Is Correct

question 51

Multiple Choice

Which of the following statements is correct?

• A) The beta of a portfolio of stocks is always smaller than the betas of any of the individual stocks.
• B) 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.
• C) 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.
• 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.

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Definitions:

Society

An organized group of individuals living together in a structured community with shared laws, traditions, and values.

Economizing Problem

The need to make choices about how to best use limited resources to satisfy unlimited wants.

Limited Resources

The economic principle that the available resources (such as time, money, and raw materials) are insufficient to satisfy all wants and needs.

Unlimited Wants

The economic concept that human desires and needs are infinite and vary in intensity, contrasting with limited available resources.