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Nickhp44
May 13, 2012, 03:04 PM
These two questions I am almost positive my answer is correct, but it can't hurt to make sure :)

(1)
A beta coefficient for a risky stock is (ANSWER: C)
a. less than 1.0
b. equal to 1.0
c. greater than 1.0
d. negative

It's got to be C because the more volatile the stock (>1), the more risky, correct?

&

(2)
A beta coefficient of 1.2 implies (ANSWER A)

1. the stock is more risky than the market
2. the stock's return is 1.2 times the return on the market
3. the stock is less risky than the market
4. the market's return is 1.2 times the return on the stock

a. 1 and 2
b. 1 and 4
c. 2 and 3
d. 3 and 4

Thanks for your help!

ArcSine
May 14, 2012, 04:34 AM
I concur on both your answers, but the first question's wording is unfortunate. "Risky" means "not risk-free". Hence, a stock with a beta of 1.0 is not risk-free, it's simply as risky as the market itself.

Similarly, a stock with a negative beta has some return volatility (and thus is "risky"), it just tends to move opposite to that of the market.

I still agree with your answer for #1, as long as there isn't a fifth choice "all the above".