A Stock Has a Beta of 1

question 34

Multiple Choice

A stock has a beta of 1.56 and an expected return of 17.3 percent.A risk-free asset currently earns 5.1 percent.If a portfolio of the two assets has a beta of 1.06,what are the portfolio weights?

• A)Stock weight = 0.28; risk-free weight = 0.72
• B)Stock weight = 0.032; risk-free weight = 0.68
• C)Stock weight = 0.44; risk-free weight = 0.56
• D)Stock weight = 0.68; risk-free weight = 0.32
• E)Stock weight = 0.72; risk-free weight = 0.28

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Definitions:

Total Overhead Cost

The sum of all indirect costs incurred by a business in the production process, which are not directly tied to a specific product or service.

Maintenance Cost

The financial outlay required to maintain assets in efficient working condition over their useful life.

Committed Fixed Cost

Long-term fixed costs that a business incurs, such as lease agreements or long-term contracts with suppliers, which are not easily altered in the short term.

Property Taxes

Taxes assessed on real estate by a local government, based on the property's value, and used to fund public services.