Good Ethics Question. its, bet, research, writing, return

leonardus

An analyst finds a stock that has had a low beta given its historical return, but its total risk has been commensurate with its return. When writing a research report about the stock for clients with well-diversified portfolios, according to Standard V(B), Communication with Clients and Prospective Clients, the analyst needs to mention:
A) both the historical beta and total risk and return.
B) the relationship of the historical total risk to return only.
C) the relationship of the historical beta and return only.

bchadwick

I’m going to answer according to CFAI, not cloud my head with third party provider interpretations of the code and standards.

ayaz_mahmud369

Communication needs to be fair ,accurate and complete . He only told beta and return but didn’t told the stock has large specific risk , I think his high return comes from high specific risk but not low beta. It is misleading.

Rasec

surely a low beta but high total risk is a sign of lots of nonsystematic risk. In a well diversified portfolio (in a integrated market) you need to look at Return vs Covariance (beta) not variance. Investor only faces systematic risk beta so C.

laurab

Paraguay Wrote:
——————————————————-
C.

Total risk is commensurate with Beta so he only
needs to give relationship of beta and return.
More of a performance appraisal question really, than a ethics one
Although C is correct, I don’t think A is incorrect – it lends a clearer picture of the client

Sunshine4ever

If I meet such question in exam , I still choose A for Communication needs to be fair ,accurate and complete . I think schweser questions are too subjective . I don’t trust them .

giorgio10

A, be as transparent as possible.

Zestt

I think he has great specific risk and the analyst should consider whether it is suitable to a well diversified portfolio.

badonkus

C.
Total risk is commensurate with Beta so he only needs to give relationship of beta and return.