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:

Spores

Asexual reproductive or resting cells capable of developing into a new organism without fusion with another cell, often seen in bacteria, fungi, and plants.

Haploid Spores

Single-celled reproductive units produced by plants, fungi, and some protozoa that contain only one set of chromosomes, leading to genetic diversity.

Capsule

A form of glycocalyx that consists of a gelatinous layer; found in blue-green algae and certain bacteria.

Moss

Bryophyte that is typically found in moist habitats.