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:

Early Adulthood

A stage of human development typically ranging from the late teens through the twenties, characterized by physical maturity and the pursuit of independence and identity.

Secondary Sexual Characteristics

Physical features that emerge during puberty which are not directly involved in reproduction but distinguish the two sexes from each other, such as facial hair in males.

Primary Sexual Characteristics

The physical characteristics present at birth that are involved directly in human reproduction.

Tertiary Sexual Characteristics

Features that do not directly involve the reproductive system but are thought to develop as a result of hormonal changes during puberty, such as voice changes and hair patterns; however, this term is less commonly used and may be considered inaccurate in current sexual development theory. Instead, primary and secondary sexual characteristics are most commonly referenced.