Stock A's Beta Is 1

question 24

Multiple Choice

Stock A's beta is 1.5 and Stock B's beta is 0.5. Which of the following statements must be true about these securities? (Assume market equilibrium.)

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

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Definitions:

Deferred Tax Income Tax

A tax liability or asset that arises due to temporary differences between the financial reporting and tax bases of assets and liabilities.

Valuation Allowance

An accounting practice used to offset a deferred tax asset on the balance sheet if it is likely that some portion or all of the asset may not be realized.

Deferred Tax Asset

An accounting term for items that will reduce future tax liability due to deductible temporary differences and carryforwards.

Warranty Costs

Expenses associated with repairing or replacing products under warranty.