Texas Computers (TC) stock has a beta of 1.5, and American Water (AW) stock has a beta of 0.5. Which of the following statements will be true about these securities?
A) The addition of TC would reduce portfolio risk more than the addition of AW.
B) The addition of AW would reduce total portfolio risk more than the addition of TC.
C) The required return for TC is greater than the required return for AW.
D) The required return for AW is greater than the required return of TC.

Question

Quizplus · Accepted Answer

Beta measures a stock's volatility in relation to the market. A beta of 1.5 (TC) indicates higher volatility and thus a higher required return than a beta of 0.5 (AW), which indicates lower volatility and a lower required return.

Texas Computers (TC) Stock Has a Beta of 1