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.

Understand the role of government and non-governmental organizations in addressing information asymmetries.

Grasp the concept of market efficiency and the conditions required for competitive markets to achieve efficient outcomes.

Apply principles of economic welfare analysis to various market situations.

Describe the impact of supply and demand changes on market surplus.

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Definitions:

Shareholders

People or organizations that hold stock in a corporation, granting them specific rights and an interest in how well the company does.

Ethical and Legal Harmony

The ideal state in which ethical principles and legal regulations align to guide individual and corporate behavior without conflict.

Utopian Society

An idealistic community or society possessing highly desirable or perfect qualities, especially in its social, legal, and moral aspects.

Legal System

The comprehensive structure of rules, procedures, institutions, and laws through which a society applies and enforces legal order.