Stock A's Beta Is 1

question 113

Multiple Choice

Stock A's beta is 1.7 and Stock B's beta is 0.7. Which of the following statements must be true, assuming the CAPM is correct.

• A) in equilibrium, the expected return on stock b will be greater than that on stock a.
• B) when held in isolation, stock a has more risk than stock b.
• C) stock b would be a more desirable addition to a portfolio than a.
• D) in equilibrium, the expected return on stock a will be greater than that on b.
• E) stock a would be a more desirable addition to a portfolio then stock b.

---

Definitions:

Break-even

The point at which total costs and total revenues are equal, resulting in no net loss or gain for a business.

Sales

The total revenue generated from selling goods or services over a certain period.

Variable Costs

Costs that vary depending on the level of activity within a business, like those associated with raw materials or the production process.

Net Income

The net income of a business once all deductions, including expenses, taxes, and other costs, are made from its total earnings.