Stock A's Beta Is 1

question 53

Multiple Choice

Stock A's beta is 1.7 and Stock B's beta is 0.7.Which of the following statements must be true, assuming the CAPM is correct.

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

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Definitions:

Monopsony Buyer

A market condition where there is only one buyer for many sellers, giving the buyer significant control over prices.

Marginal Expenditure

The increase in cost that arises when buying an added unit of a product or service.

Average Expenditure

The average amount spent per unit of a good or service.

Competitive Buyer

An individual or entity that purchases goods or services in a market where there is competition, aiming to obtain the best possible price and quality.