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:

Useful Life

The expected period over which a fixed asset is projected to be usable by a company, affecting its depreciation or amortization schedules.

Maintenance and Repairs Expense

Costs incurred to keep property, plant, and equipment in operating condition and to fix unexpected breakdowns.

Closing Costs

These are fees and expenses, aside from the price of the property, paid by buyers and sellers when transferring ownership of a property.

Freight-In

The cost of transporting goods into a warehouse or to the buyer, which is typically included in the cost of goods sold.