Which of the following statements is true?Group of answer choicesA stock having a covariance with the market that is higher than the variance of the market will always have a beta above 1.0.Stocks with high standard deviations will necessarily also have high betas.The standard deviation of a two-stock portfolio generally equals the value-weighted average of the standard deviations of the two stocks.A portfolio with a beta of one offers an expected return equal to the market risk premium.

The statement that is true is: "A stock having a covariance with the market that is higher than the variance of the market will always have a beta above 1.0."

Here's why:

1. Beta is a measure of a stock's risk in relation to the market. It is calculated by dividing the covariance of the stock's returns with the market's returns by the variance of the market's returns. If a stock's covariance with the market is higher than the market's variance, the resulting beta will be greater than 1.0.

2. Stocks with high standard deviations do not necessarily have high betas. Standard deviation measures total risk, while beta measures systematic risk. A stock could have a high standard deviation (high total risk) but a low beta (low systematic risk) if most of its risk is unsystematic (company-specific) risk.

3. The standard deviation of a two-stock portfolio does not generally equal the value-weighted average of the standard deviations of the two stocks. Portfolio standard deviation depends not only on the standard deviations of the individual stocks, but also on the correlation between the stocks.

4. A portfolio with a beta of one does not offer an expected return equal to the market risk premium. The expected return of a portfolio is the risk-free rate plus the portfolio's beta times the market risk premium. If a portfolio has a beta of one, its expected return is the risk-free rate plus the market risk premium, not the market risk premium alone.

The statement that is true is: "A stock having a covariance with the market that is higher than the variance of the market will always have a beta above 1.0."

Here's why:

1. Beta is a measure of a stock's systematic risk, or the sensitivity of a stock's returns to changes in the market. It is calculated as the covariance of the stock's returns with the market's returns divided by the variance of the market's returns. Therefore, if a stock's covariance with the market is higher than the market's variance, the beta will be greater than 1.0.

2. High standard deviations do not necessarily mean high betas. Standard deviation is a measure of total risk, including both systematic and unsystematic risk, while beta only measures systematic risk. A stock can have a high standard deviation (high total risk) but a low beta (low systematic risk) if most of its risk is unsystematic.

3. The standard deviation of a two-stock portfolio does not generally equal the value-weighted average of the standard deviations of the two stocks. This is because the standard deviation of a portfolio also depends on the correlation between the stocks.

4. A portfolio with a beta of one does not necessarily offer an expected return equal to the market risk premium. The expected return of a portfolio also depends on the risk-free rate. According to the Capital Asset Pricing Model (CAPM), the expected return of a portfolio is the risk-free rate plus the product of the portfolio's beta and the market risk premium.