Which of the Statements Is Most Correct

question 23

Multiple Choice

Which of the statements is most correct?

• A) Suppose the returns on two shares are negatively correlated.One has a beta of 1.2 as determined in a regression analysis, while the other has a beta of -0.6.The returns on the share with the negative beta will be negatively correlated with returns on most other shares in the market.
• B) Suppose you are managing a share portfolio, and you have information which leads you to believe that the share market is likely to be very strong in the immediate future, i.e., you are confident that the market is about to rise sharply.You should sell your high beta shares and buy low beta shares in order to take advantage of the expected market move.
• C) In a recent issue, The Wall Street Journal ran a story on a company named Collections Inc., which is in the business of collecting past due accounts for other companies, i.e., it is a collections agency.According to the Journal, Collections' revenues, profits, and share price tend to rise during recessions.This suggests that Collection Inc.'s beta should be quite high, say 2.0, because it does so much better than most companies when the economy is weak.
• D) Statements a and b are both true.
• E) Statements a and c are both true.

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