Problem: 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.