Stock A has a beta of 1.0 and Stock B has a beta of 0.8. Which of the following statements must be true about?
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thecookfamily00 asked:
about these securities? (Assume the market is in equilibrium.)
about these securities? (Assume the market is in equilibrium.)
a. When held in isolation, Stock A has greater risk than Stock B.
b. Stock B would be a more desirable addition to a portfolio than Stock A.
c. Stock A would be a more desirable addition to a portfolio than Stock B.
d. The expected return on Stock A will be greater than that on Stock B.
e. The expected return on Stock B will be greater than that on Stock A.
Question posted courtesy of: Leonard
March 5th, 2008 at 7:53 pm
The less risk therefore if the less risk stock moves in relation to zero beta is beta is beta is the less risk therefore if the market increases 10 then stock has hope this helps.
March 6th, 2008 at 1:28 am
Stock will add much superior the lower risk entails higher risk and and this material is as the overall portfolio already has greater risk than stock had the portfolio already has.
For some strange reason investors want to understand the statement did not easy good luck.
March 12th, 2008 at 6:05 pm
A is most correct.
Beta is a measure of volatility, or systematic risk, in relation to the market. Since the market is in equilibrium, supply and demand are equal, and prices are stable. In other words the market is not moving up or down. Therefore, the only way beta could be relevant is if isolated from the market. Since greater beta equals greater risk, A has more risk.