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.
A. Stock A would be a more desirable addition to a portfolio then 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 A.
E. In equilibrium, the expected return on Stock A will be greater than that on B.
Answer: E
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