Megan Decided to Start Investing in Stocks

question 87

Multiple Choice

Megan decided to start investing in stocks. Which of the following should she do first?

• A) Base her investing decisions on hot tips she hears at work.
• B) Buy stocks based solely on her stockbroker's recommendation.
• C) Choose stocks based on recommendations from her family members.
• D) Pick stocks at random.
• E) Research the corporations she is interested in as well as their industries.

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Definitions:

Beta

A means to compare the stability and risk factor of a security or portfolio relative to the market as a whole.

SML (Security Market Line)

A line that represents the expected return of an investment as a function of its risk, with the risk measured by the investment's beta.

Zero-investment Portfolio

A portfolio that is constructed without requiring any initial capital, typically by taking long and short positions that offset each other.

Short and Long Positions

Short positions involve selling securities not owned with the hope of buying them back at a lower price, while long positions involve buying securities with the expectation that they will increase in value.