If a Firm's Stock Returns Co-Vary Identically with Returns to a Market-Wide

question 10

Multiple Choice

If a firm's stock returns co-vary identically with returns to a market-wide portfolio,then its market beta from such a regression is:

• A) equal to zero.
• B) equal to one.
• C) less than one.
• D) greater than one.

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Definitions:

Variable Costs

are expenses that change in proportion to the activity of a business, such as raw material costs, which increase with the level of production.

Direct Labor

Factory labor costs that can be easily traced to individual units of product. Also called touch labor.

Contribution Margin

The amount by which sales revenue exceeds variable costs of production, indicating the contribution towards covering fixed costs.

Fixed Costs

These are expenses that do not change with the level of output or sales, such as rent, salaries, and insurance.