Consider the Following Average Annual Returns for Stocks a and B

question 123

Multiple Choice

Consider the following average annual returns for Stocks A and B and the Market. Which of the possible answers best describes the historical betas for A and B?
$\begin{array}{cc}\text { Years }&\text { Market }& \text { Stock A }& \text { Stock B } \\1&-0.05 & 0.16&0.05 \\2&0.01 & 0.20 &0.05 \\3&-0.10 & 0.18&0.05 \\4&0.06 & 0.25 &0.05 \\5&0.06& 0.14&0.05 \end{array}$

• 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:

Retained Earnings

The portion of a company’s profits that is retained within the business rather than distributed to shareholders as dividends.

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Accounts that record the income a company earns from its normal business activities.

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Accounts that track the costs of operating a business, such as rent, utilities, and salaries.

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