Asset 1 Has a Beta of 1

question 64

Multiple Choice

Asset 1 has a beta of 1.2 and Asset 2 has a beta of 0.6.Which of the following statements is correct?

• A) Asset 1 is more volatile than Asset 2.
• B) Asset 1 has a higher expected return than Asset 2.
• C) In a regression with individual asset's return as the dependent variable and the market's return as the independent variable, the R-squared value is higher for Asset 1 than it is for Asset 2.
• D) All of the above statements are correct.

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Definitions:

Debt/Equity Ratio

A fiscal measure that shows the comparative amount of a firm's assets funded by its owners' equity versus borrowed funds.

ROA

Return on Assets, a financial ratio indicating how profitable a company is relative to its total assets.

Interest Rate

The percentage of a loan that is applied as interest for the borrower, usually shown as an annual percentage of the remaining loan balance.

Asset Utilization

Measures how efficiently a company uses its assets to generate revenue.