Texas Computers (TC) Stock Has a Beta of 1

question 62

Multiple Choice

Texas Computers (TC) stock has a beta of 1.5, and American Water (AW) stock has a beta of 0.5. Which of the following statements will be true about these securities?

• A) The addition of TC would reduce portfolio risk more than the addition of AW.
• B) The addition of AW would reduce total portfolio risk more than the addition of TC.
• C) The required return for TC is greater than the required return for AW.
• D) The required return for AW is greater than the required return of TC.

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Definitions:

Variable Manufacturing Overhead

consists of production costs that fluctuate with the level of output, such as utilities or materials used in the maintenance of equipment.

Fixed Manufacturing Overhead

Indirect manufacturing costs that do not vary with production volume, such as salaries of managers, rent, and utility expenses.

Labor-Hours

A measure of the amount of work effort measured in hours, often used in tracking productivity and calculating labor costs.

Predetermined Overhead Rate

An estimated overhead rate used in costing to assign indirect costs to products or services based on an activity measure, recalculated for emphasis.