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:

Utilitarian Ethics

A moral theory that dictates the best action is the one that maximizes utility, often defined as maximizing happiness and reducing suffering.

Environmental Pollution

The contamination of the natural environment causing adverse effects on living organisms and the ecosystem.

Carpooling

Carpooling is the practice of sharing a car ride with one or more individuals to reduce individual travel costs, environmental impact, and traffic congestion.

Kantianism

A philosophical doctrine based on the ethics of Immanuel Kant, emphasizing duty, moral law, and the categorical imperative.