Stock a Has a Beta of 1

question 47

Multiple Choice

Stock A has a beta of 1.2 and a standard deviation of 25%.Stock B has a beta of 1.4 and a standard deviation of 20%.Portfolio AB was created by investing in a combination of Stocks A and B.Portfolio AB has a beta of 1.25 and a standard deviation of 18%.Which of the following statements is CORRECT?

• A) Stock A has more market risk than Portfolio AB.
• B) Stock A has more market risk than Stock B but less stand-alone risk.
• C) Portfolio AB has more money invested in Stock A than in Stock B.
• D) Portfolio AB has the same amount of money invested in each of the two stocks.
• E) Portfolio AB has more money invested in Stock B than in Stock A.

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Definitions:

Variable

An element, feature, or factor that is liable to vary or change; in the context of finance and economics, it often refers to costs that fluctuate with the level of output or activity.

Fixed-Cost

Expenses that do not change with the level of output or sales, such as rent, salaries, and insurance premiums.

Activity Level

A measure of the amount of work or operations conducted by a business or organization during a specific period.

Activity Index

A measure used to understand the level of activity in a particular area, such as production or sales, often used in planning and forecasting.