Stock A's beta is 1.7 and Stock B's beta is 0.7. Which of the following statements must be true about these securities? (Assume market equilibrium.)
Stock A's beta is 1.7 and Stock B's beta is 0.7. Which of the following statements must be true about these securities? (Assume market equilibrium.) A) When held in isolation, Stock A has more risk than Stock B. B) The expected return on Stock A should be greater than that on B. C) Stock A must be a more desirable addition to a portfolio than B. D) The expected return on Stock B should be greater than that on A. E) Stock B must be a more desirable addition to a portfolio than A.
B) The expected return on Stock A should be greater than that on B.
You are considering investing in one of the these three stocks: Stock; Standard Deviation; Beta A; 20%; 0.59 B; 10%; 0.61 C; 12%; 1.29 If you are a strict risk minimizer, you would choose Stock ____ if it is to be held in isolation and Stock ____ if it is to be held as part of a well-diversified portfolio.
B;A
You hold a portfolio consisting of a $5,000 investment in each of 20 different stocks. The portfolio beta is equal to 1.12. You have decided to sell a coal mining stock (b = 1.00) at $5,000 net and use the proceeds to buy a like amount of a mineral rights company stock (b = 2.00). What is the new beta of the portfolio? A) 1.2927 B) 1.1139 C) 1.3573 D) 1.1700 E) 1.2311
D) 1.1700
Stocks A and B are quite similar: Each has an expected return of 12%, a beta of 1.2, and a standard deviation of 25%. The returns on the two stocks have a correlation of 0.6. Portfolio P has 50% in Stock A and 50% in Stock B. Which of the following statements is CORRECT? A) Portfolio P has a standard deviation that is greater than 25%. B) Portfolio P has a beta that is less than 1.2. C) Portfolio P has an expected return that is less than 12%. D) Portfolio P has a standard deviation that is less than 25%. E) Portfolio P has a beta that is greater than 1.2.
D) Portfolio P has a standard deviation that is less than 25%.
Which of the following statements is CORRECT? A) The beta of a portfolio of stocks is always larger than the betas of any of the individual stocks. B) It is theoretically possible for a stock to have a beta of 1.0. If a stock did have a beta of 1.0, then, at least in theory, its required rate of return would be equal to the risk-free (default-free) rate of return. C) The beta of a portfolio of stocks is always smaller than the betas of any of the individual stocks. D) If you found a stock with a zero historical beta and held it as the only stock in your portfolio, you would by definition have a riskless portfolio. E) The beta coefficient of a stock is normally found by regressing past returns on a stock against past market returns. One could also construct a scatter diagram of returns on the stock versus those on the market, estimate the slope of the line of best fit, and use it as beta. However, this historical beta may differ from the beta that exists in the future.
E) The beta coefficient of a stock is normally found by regressing past returns on a stock against past market returns. One could also construct a scatter diagram of returns on the stock versus those on the market, estimate the slope of the line of best fit, and use it as beta. However, this historical beta may differ from the beta that exists in the future.
