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

question 15

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?
$\begin{array}{l}\begin{array} { l } \text { Years } & \text { Market } \\1&0.03 \\2 & -0.05 \\3 & 0.01 \\4 & -0.10 \\5 & 006\end{array}\begin{array} { l } \text { Stock A } \\ 0.16 \\0.20 \\0.18 \\0.25 \\014\end{array}\begin{array} { l } \text { Stock B } \\ 0.05 \\0.05 \\0.05 \\0.05 \\005\end{array}\end{array}$

• 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.

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Definitions:

Cumulative Preferred Stock

A type of preferred stock that entitles the shareholder to receive dividends that, if omitted, accumulate and must be paid before dividends can be paid to common shareholders.

Annual Dividend

The total amount of dividend payments made to shareholders in a year.

Cash Dividend

A payment made by a company out of its earnings to shareholders, usually in cash.

Financial Statements

Formal records of the financial activities and position of a business, individual, or other entity, typically including the balance sheet, income statement, and cash flow statement.