Question

Which of the following stocks is likely to be the most sensitive to market fluctuations? A...

Which of the following stocks is likely to be the most sensitive to market fluctuations?

  1. A stock with a high standard deviation
  2. A stock with a high beta
  3. A stock with a low correlation with the market
  4. A stock with a low standard deviation
  5. A stock with a low beta

Homework Answers

Answer #1

Answer : A stock with a high beta

beta measures a stock’s volatility relative to the market as a whole, not for a single stock only. Beta is measure of the fund’s volatility relative to other funds in the market. That is, it measurers the market sensitivity. Low beta indicates low volatility and vice versa.

Standard deviation measures the risk of individual stocks that is a fund’s volatility. The volatility is measured by its standard deviation of returns over a short period of time. It indicates the tendency of the returns to rise or fall in a short span of time. A stock with high volatility will have a high standard deviation and vice versa.

Correlation measures how assets move in relation to each other. High correlation indicates high volatility of stocks with each other. It measures the tendency of two stocks to move in the same direction.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Which of the following is most accurate: Select one or more: a. a stock with a...
Which of the following is most accurate: Select one or more: a. a stock with a high standard deviation will always have a high coefficient of variation b. a stock with a high standard deviation will probably have a low coefficient of variation c. a stock with a high standard deviation will probably have a low return d. a stock with a high standard deviation will always have a high return e. a stock with a high standard deviation will...
Which of the following Statements is most accurate? The greater the number of stocks in a...
Which of the following Statements is most accurate? The greater the number of stocks in a stock portfolio, the harder it would be to outperform a market index like the S&P 500 The greater the number of stocks in a stock portfolio, the higher the beta of the portfolio The greater the number of stocks in a stock portfolio, the lower the portfolio's systematic risk The beta of a sock portfolio will increase any time that one or more of...
Which of the following is most likely to have a low (e.g. 0.2) beta? A biotech...
Which of the following is most likely to have a low (e.g. 0.2) beta? A biotech company awaiting FDA approval An index fund following the S&P 500 A high-end jewelry store An insulin (diabetes drug) producer
Suppose stocks offer an expected rate of returns of 10% with a standard deviation of 20%,...
Suppose stocks offer an expected rate of returns of 10% with a standard deviation of 20%, and gold offers an expected return of 5% with a standard deviation of 25%. (i) If the correlation between gold and stocks is sufficiently low, gold ______ be held as a component in the optimal portfolio. (ii) If the correlation coefficient between gold and stocks is 1.0, then gold ______ be held as a component in the optimal portfolio.        Question 1 options: A) (i)...
Which of the following statements is CORRECT? Select one: a. Collections Inc. is in the business...
Which of the following statements is CORRECT? Select one: a. Collections Inc. is in the business of collecting past-due accounts for other companies, i.e., it is a collection agency. Collections' revenues, profits, and stock price tend to rise during recessions. This suggests that Collections Inc.'s beta should be quite high, say 2.0, because it does so much better than most other companies when the economy is weak. b. Suppose the returns on two stocks are negatively correlated. One has a...
1. Two stocks have the following possible outcomes:             Outcome Probability Stock W Market Stock X...
1. Two stocks have the following possible outcomes:             Outcome Probability Stock W Market Stock X 1 .15 +2% +7% +25% 2 .15 +18% +4% +10% 3 .40 +9% +8% +14% 4 .15 -12% -9% +3% 5 .15 +8% -2% -10% a. What is the expected return for each stock and the Market? b. What is the standard deviation for each stock and the Market? c. What is the correlation between the stocks, and each stock and the Market? d....
Which of the following statements regarding bond prices and market interest rates are most likely to...
Which of the following statements regarding bond prices and market interest rates are most likely to be true? Interest rate risk can be described as the changes in market interest rates that will cause fluctuations in a bond’s price. Bond prices and market interest rates are negatively related to each other. Coupon paying bonds will trade at a premium to their face value because of the future cash flows expected by bond investors.
25. Which of the following is most likely to be qualified as a perfectly competitive market?...
25. Which of the following is most likely to be qualified as a perfectly competitive market?    a. Airline industry b. Stock market c. Gas station d. Power utility industry
Consider the following expectations for the market and two particular stocks in two possible equally likely...
Consider the following expectations for the market and two particular stocks in two possible equally likely states: (Please show the work step by step) State                          Market Return                                  Stock A                                    Stock B Boom                                 25% 38% 12% Recession 5% -2% 6% A. What is the beta of each stock? Remember that beta can be computed as the covariance of the stock’s return with the market return divided by the variance of the market return. B. What is the expected return on each...
Suppose that the CAPM is the correct model of expected returns. Which of the following stocks...
Suppose that the CAPM is the correct model of expected returns. Which of the following stocks will have the highest expected return? Group of answer choices A stock with beta of 0.8 and a standard deviation of returns equal to 20% A stock with beta of 0.65 and a standard deviation of returns equal to 27.5% A stock with beta of 0.5 and a standard deviation of returns equal to 35% A stock with beta of 0.6 and a standard...