Stock X Has a Beta of 0

question 102

Multiple Choice

Stock X has a beta of 0.6,while Stock Y has a beta of 1.4.Which of the following statements is CORRECT?

• A) A portfolio consisting of $50,000 invested in Stock X and $50,000 invested in Stock Y will have a required return that exceeds that of the overall market.
• B) Stock Y must have a higher expected return and a higher standard deviation than Stock X.
• C) If expected inflation increases but the market risk premium is unchanged,then the required return on both stocks will fall by the same amount.
• D) If the market risk premium declines but expected inflation is unchanged,the required return on both stocks will decrease,but the decrease will be greater for Stock Y.
• E) If expected inflation declines but the market risk premium is unchanged,then the required return on both stocks will decrease but the decrease will be greater for Stock Y.

---

Definitions:

Solomon Asch Experiment

A series of psychological experiments conducted in the 1950s by Solomon Asch, demonstrating the power of conformity in groups.

Conformity

The act of matching attitudes, beliefs, and behaviors to group norms, politics, or societal expectations.

Group Members

Individuals who belong to a specific social group or organization sharing common goals, interests, or identities.

Social Influence

Group impact on others’ decisions.