You Are Considering Investing in One of the These Three

question 42

Multiple Choice

You are considering investing in one of the these three stocks: $\begin{array}{ccc}\text { Stock } & \text { Standard Deviation } & \text { Beta } \\ \mathrm{A} & 20 \% & 0.59 \\\mathrm{~B} & 10 \% & 0.61 \\\mathrm{C} & 12 \% & 1.29\end{array}$
If you are a strict risk minimizer, you would choose Stock ____ if it is to be held in isolation and Stock ____ if it is to be held as part of a well-diversified portfolio.

• A) a; b.
• B) b; a.
• C) c; a.
• D) c; b.
• E) a; a.

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Definitions:

Opportunity Cost

is the value of the next best alternative forgone as a result of making a particular choice, highlighting the trade-offs in decision-making.

Absolute Advantage

The ability of a country or individual to produce a good or service more efficiently than others, using fewer resources.

Terms Of Trade

How much of one good exchanges for a unit of another good.

Comparative Advantage

The ability of a country or entity to produce a particular good or service at a lower opportunity cost than others, leading to more efficient international trade.