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:

Negation

The logical operation that takes a proposition to its opposite in truth value, from true to false and vice versa.

Event

An occurrence or happening, particularly one of significance, that can be distinctly identified in time and space.

Probability

The quantification of the chances that a specific event will take place.

Disjunction

A logical operation that yields truth if at least one of its operands is true; often represented by the word "or".