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

question 31

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? $$\begin{array} { c r c c } \underline{\text { Years }} & \underline { \text { Market } } & \underline { \text { Stock A } } &\underline{ \text { Stock B }}\\ 1 & 0.03 & 0.16 & 0.05 \\2 & - 0.05 & 0.20 & 0.05 \\3 & 0.01 & 0.18 & 0.05 \\4 & - 0.10 & 0.25 & 0.05 \\5 & 0.06 & 0.14 & 0.05\end{array}$$

• 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:

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A requirement in insurance policies that the policyholder must have a financial interest in the insured item or person that would cause financial loss if damaged or lost.

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