Stock X Has a Beta of 0

question 4

Multiple Choice

Stock X has a beta of 0.7 and Stock Y has a beta of 1.7.Which of the following statements must be true, according to the CAPM?

• A) Stock Y's realized return during the coming year will be higher than Stock X's return.
• B) 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.
• C) Stock Y's return has a higher standard deviation than Stock X.
• D) 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.
• E) 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.

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Definitions:

Psychotherapies

Various therapeutic methods employed to help individuals identify, understand, and manage their psychological, behavioral, and emotional issues.

Group Therapies

A form of psychotherapy in which a small, carefully selected group of individuals meets regularly with a therapist to discuss and work on their problems together.

Genetic Error

A mutation or abnormality in the DNA sequence that can lead to disease or disorders.

Neural Connections

The links between neurons in the brain, formed by synapses, through which neural signals are sent and received.