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.

---

Definitions:

Inventory Valuation

The method of calculating the cost associated with inventory at the end of an accounting period to determine the cost of goods sold and inventory on hand.

LIFO Perpetual Inventory System

An inventory management method where the last items added to inventory are assumed to be the first sold, continuously updated.

Ending Inventory

The amount of goods available for sale at the finis of an accounting cycle.

Perpetual LIFO Method

The perpetual LIFO (Last In, First Out) method is an accounting technique for inventory valuation where goods are assumed to be sold in the reverse order they were acquired, continuously adjusting inventory value.