Question 1
Keith Johnson has $100,000 invested in a two-stock portfolio: $40,000 is invested in Potts Manufacturing and the remainder is invested in Stohs Corporation. Potts’s beta is 1.70 and Stohs’s beta is 0.50. What is the portfolio’s beta?
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0.74
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0.98
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1.12
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1.35
Question 2
Market risk refers to the tendency of a stock to move with the general stock market. Which of the following best describes a stock with a below-average market risk?
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it will tend to be less volatile than an average stock and its beta will be less than 1.0
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it will tend to be less volatile than an average stock and its beta will be greater than 1.0
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it will tend to be less volatile than an average stock and its beta will be equal to 1.0
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it will tend to be less volatile than an average stock and its beta will be greater than 1.0 and less than 1.5
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