Which of the Following Statements Is CORRECTσ

question 16

Multiple Choice

Which of the following statements is CORRECTσ

• A) if you found a stock with a zero historical beta and held it as the only stock in your portfolio, you would by definition have a riskless portfolio.
• B) the beta coefficient of a stock is normally found by regressing past returns on a stock against past market returns. one could also construct a scatter diagram of returns on the stock versus those on the market, estimate the slope of the line of best fit, and use it as beta. however, this historical beta may differ from the beta that exists in the future.
• C) the beta of a portfolio of stocks is always larger than the betas of any of the individual stocks.
• D) it is theoretically possible for a stock to have a beta of 1.0. if a stock did have a beta of 1.0, then, at least in theory, its required rate of return would be equal to the risk-free (default-free) rate of return, rrf.
• E) the beta of a portfolio of stocks is always smaller than the betas of any of the individual stocks.

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Definitions:

Dividends

Payments made by a corporation to its shareholder members, usually derived from the company's earnings.

Investing Activities

Cash flow activities that include (a) purchasing and disposing of investments and property, plant, and equipment using cash and (b) lending money and collecting the loans.

Cash Inflow

Money or equivalent value received by a business during a specific period, including revenues from sales, financing, and investment activities.

Financing Activities

Cash flow activities that include (a) obtaining cash from issuing debt and repaying the amounts borrowed and (b) obtaining cash from stockholders, repurchasing shares, and paying dividends.