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.

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Definitions:

Life Cycle Arc

A concept that illustrates the progression of phases that an entity, such as a product, project, or service, goes through from its inception to its completion or termination.

Operating Fund

Refers to the pool of resources available for the day-to-day functioning of an organization, covering expenses such as salaries, rent, and utilities.

Strategic Plans

Long-term planning documents that articulate an organization's goals, strategies for achieving those goals, and measures for assessing progress.

Operational Plan

A detailed outline of how a strategy will be implemented in terms of resources and actions needed to achieve specific objectives.