Stock a Has a Beta of 1

question 37

Multiple Choice

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

• A) When held in isolation, Stock A has greater risk than Stock B.
• B) Stock B would be a more desirable addition to a portfolio than Stock A.
• C) Stock A would be a more desirable addition to a portfolio than Stock B.
• D) The expected return on Stock A will be greater than that on Stock B.
• E) The expected return on Stock B will be greater than that on Stock A.

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Definitions:

Anticipated

The expected occurrence or expectation of an event, often used in the context of financial forecasts or income.

Annually

Occurring once every year or relating to a period of one year.

Annually

Annually means once every year.

Investors

Individuals or institutions that allocate capital with the expectation of receiving financial returns, often involving the purchase of securities.