A stock analyst has come to the conclusion that three stocks have the following characteristics: Stock Expected
Question:
A stock analyst has come to the conclusion that three stocks have the following characteristics:
Stock Expected Return Beta
X 3% 0.20
And 4% 0.50
From 9% 1.20
1. Given this information, the analyst should recommend:
(A) buying a portfolio that has a 45% weight on X, and 55% on Y, while selling (short)
the same dollar amount of Z.
(B) selling (short) a portfolio that has a 45% weight on X, and 55% on Y, while buying
the same dollar amount of Z.
(C) buying a portfolio that has a 70% weight on X and 30% on Z, while selling (short)
the same dollar amount of Y.
(D) selling (short) a portfolio that has a 70% weight on X and 30% on Z, while buying
the same dollar amount of Y.
2. Suppose (correctly or incorrectly) that the analyst has chosen alternative 21A in the
previous question and that a large group of investors has followed his advice. What
would you expect to happen in the market?
(A) The price of stocks X and Y will rise, and that of stock Z will fall; the expected
return of stocks X and Y will rise, and that of stock Z will fall.
(B) The price of stocks X and Y will fall, and that of stock Z will rise; the expected
return of stocks X and Y will rise, and that of stock Z will fall.
(C) The price of stocks X and Y will rise, and that of stock Z will fall; the expected
return of stocks X and Y will fall, and that of stock Z will rise.
(D) The price of stocks X and Y will rise, and that of stock Z will fall; the expected
return of stocks X and Y will rise, and that of stock Z will fall.
Auditing A Practical Approach
ISBN: 9780730382645
4th Edition
Authors: Robyn Moroney, Fiona Campbell, Jane Hamilton