You have the following data on (1) the average annual returns of the market for

Question

You have the following data on (1) the average annual returns of the market for the past 5 years and (2) similar information on Stocks A and B. Which of the possible answers best describes the historical betas for A and B?

Years

Market

Stock A

Stock B

1

0.03

0.05

0.18

2

0.05

0.05

0.02

3

0.01

0.05

0.13

4

0.10

0.05

0.05

5

0.06

0.05

0.21

A. bA = 0; bB = 1

B. bA < 0; bB = 0

C. bA = 0; bB > 0

D. bA > +1; bB < 0

E. bA = 0; bB = +1

Years

Market

Stock A

Stock B

1

0.03

0.05

0.18

2

0.05

0.05

0.02

3

0.01

0.05

0.13

4

0.10

0.05

0.05

5

0.06

0.05

0.21

Explanation / Answer

C. bA = 0; bB > 0

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