Question: The following table provides a security analyst's expected return on two stocks in two particular scenarios for the market return. State Probability Market return %

The following table provides a security analyst's expected return on two stocks in two particular scenarios for the market return.

State Probability Market return % Stock A return % Stock B return %
Poor 0.25 4 5.5 3.8
Good 0.75 15 33 12.6

Consider the following statements.

I. The beta of stock A is greater than 3.

II. The beta of stock B is less than 1.

Which of the following is correct?

a.

Statement I is incorrect, Statement II is correct.

b.

Statements I and II are both incorrect.

c.

Statement I is correct, Statement II is incorrect.

d.

Statements I and II are both correct.

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