Stock a Has a Beta of 1

question 37

Multiple Choice

Stock A has a beta of 1.5 and Stock B has a beta of 0.5. Which of the following statements must be true about these securities? (Assume the market is in equilibrium.)

• A) When held in isolation, Stock A has greater risk than Stock B.
• B) Stock B would be a more desirable addition to a portfolio than Stock A.
• C) Stock A would be a more desirable addition to a portfolio than Stock B.
• D) The expected return on Stock A will be greater than that on Stock B.
• E) The expected return on Stock B will be greater than that on Stock A.

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Definitions:

Capital Lease

A lease agreement that designates the lessee (the party leasing the asset) as the owner for accounting purposes, and it generally spans a significant portion of the asset's life.

Accounting Purposes

The rationale or objective behind various accounting practices, often to comply with regulatory requirements or to provide clear financial information.