Stock X Has a Beta of 0

question 111

Multiple Choice

Stock X has a beta of 0.5 and Stock Y has a beta of 1.5.Which of the following statements must be true,according to the CAPM?

• A) If you invest $50,000 in Stock X and $50,000 in Stock Y,your 2-stock portfolio would have a beta significantly lower than 1.0,provided the returns on the two stocks are not perfectly correlated.
• B) Stock Y's realized return during the coming year will be higher than Stock X's return.
• C) If the expected rate of inflation increases but the market risk premium is unchanged,the required returns on the two stocks should increase by the same amount.
• D) Stock Y's return has a higher standard deviation than Stock X.
• E) If the market risk premium declines,but the risk-free rate is unchanged,Stock X will have a larger decline in its required return than will Stock Y.

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Definitions:

Crop Rotation

A farming practice that involves growing different types of crops in the same area across a sequence of seasons to improve soil health and reduce pest and weed pressure.

Fordism

An industrial production system pioneered by Henry Ford, characterized by large-scale manufacturing of standardized products using assembly line technology and specialized labor.

Mass Production

The manufacturing of large quantities of standardized products, often using assembly lines or automated technology.

Henry Ford

An American industrialist and founder of the Ford Motor Company, known for revolutionizing the automobile industry with mass-production techniques.