Which of the Following Statements Is CORRECT

question 24

Multiple Choice

Which of the following statements is CORRECT?

• 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, r_RF.
• 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:

Unconditioned Stimulus

A stimulus that naturally and automatically triggers a response without needing prior learning.

Spontaneous Recovery

The return of a conditioned response that had vanished, following a pause where the conditioned stimulus was not presented.

Classical Conditioning

The conditioning process of repeatedly associating two stimuli together, such that a reaction first brought about by the second stimulus is later brought about by the first stimulus alone.

Misusing Punishment

The incorrect application of punishment that can lead to unwanted consequences, such as reinforcing the undesired behavior it seeks to discourage.