Stock A's Beta Is 1

question 139

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:

Dissonance Theory

A psychological theory suggesting that inconsistency among beliefs, attitudes, or behaviors creates a feeling of discomfort, leading individuals to change one to resolve the dissonance.

Classy Swimsuit

A type of swimwear that is elegant and stylish, typically designed with sophistication in mind.

Champs-Elysées

A distinguished avenue in Paris, France, known for its theatres, cafés, and luxury shops, making it one of the world's most famous and recognizable streets.

Post-Decisional Conflict

The dissonance associated with behaving in a counter-attitudinal way. Dissonance can be reduced by bringing the attitude into line with the behaviour.