Stock A's Beta Is 1

question 96

Multiple Choice

Stock A's beta is 1.5 and Stock B's beta is 0.5.Which of the following statements must be true,assuming the CAPM is correct?

• A)Stock A would be a more desirable addition to a portfolio than Stock B.
• B)In equilibrium, the expected return on Stock B will be greater than that on Stock A.
• C)Stock B would be a more desirable addition to a portfolio than Stock A.
• D)In equilibrium, the expected return on Stock A will be greater than that on Stock B.

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Definitions:

Market-based Economy

An economic system where economic decisions and the pricing of goods and services are largely guided by the interactions of a country's individual citizens and businesses.

Gini Coefficient

A measure of income inequality within a population, ranging from 0 (absolute equality) to 1 (absolute inequality).

Quantitative Easing

A monetary policy in which a central bank buys government securities or other securities from the market to lower interest rates and increase the money supply.

Reserve Requirement

A regulation set by central banks that determines the minimum amount of reserves a bank must hold against deposits, influencing the bank's capacity to lend.