QUESTION 34 Darren has the option of investing in either Stock A or Stock B. The probability of the return of Stock A being 25% is 0.45, 14% is 0.25, and 4% is 0.30. The probability of the return of Stock B being 30% is 0.30, 9% is 0.25, and 2% is 0.30. Given the probability distributions for the two investments, what is the expected rate of return for Stock A and Stock B? a. 15.95%; 11.85% b. 17.82%; 1 1 .95% Oc, 16.80%; 11.45% Od. 13.65%; 12.85% e. 14.75%; 13.75% QUESTION 35 Which of the following statements about bcta and risk is correct? O a. If two stocks have the same standard deviation and the correlation coefficient between the returns of two stocks equals zero, an equally weighted portfolio of the two stocks will have a standard deviation equal to that of the individual stocks. b. A stock's beta is less relevant as a measure of risk to an investor with a well-diversified portfolio than to an investor who holds only one stock. c. Combining stocks with perfectly positively correlated stock returns into a portfolio is less risky than holding an individual stock since the portfolio will benefit from diversification. O d. If the returns of two firms are negatively correlated, one of them must have a negative beta. e. A security's beta measures its diversifiable (systematic, or market) risk relative to that of other securities. QUESTION 36 Which of the following securities has the highest priority with regard to earnings and assets of a firm? a. Corporate bonds Ob. Foreign stocks c. Preferred stock O d. American depository receipts (ADRs) Oe. Common stock