Stock X Has a Beta of 0

question 3

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) Stock Y must have a higher expected return and a higher standard deviation than Stock X.
• B) If expected inflation increases but the market risk premium is unchanged, then the required return on both stocks will fall by the same amount.
• C) 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.
• D) 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.
• E) 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.

---

Definitions:

Vascular Congestion

The accumulation of an excessive amount of blood in the vessels of a specific area of the body, often leading to swelling and discomfort.

Muscle Contraction

The activation of tension-generating sites within muscle fibers, leading to shortening or lengthening of the muscle and movement or maintenance of posture.

Cardiac Relaxation

The phase of the cardiac cycle when the heart muscle relaxes and the chambers fill with blood.

Spectator Role

A psychological state during sexual activity, where an individual becomes an observer of their own performance, which can lead to performance anxiety and sexual dysfunctions.