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    Stock beta

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    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.

    Since the question is bringing in CAPM, my answer would be d since A would add to a portfolio and be less risky. Is this 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) When held in isolation, Stock A has more risk than Stock B.

    d) Stock B would be a more desirable addition to a portfolio than Stock A.

    e) In equilibrium, the expected return on Stock A will be greater than that on Stock B.

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    https://brainmass.com/business/capital-asset-pricing-model/portfolio-risk-beta-and-capm-370037

    Solution Preview

    The correct answer would be

    e) In equilibrium, the expected return on Stock A will be greater than that on Stock B. ...

    Solution Summary

    The solution explains the correct option from the given alternatives with regards to portfolio risk.

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