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.

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Definitions:

Full Travel

The maximum distance or range of motion that a mechanical component or system can move or be moved.

Clutch Brake

A component used to momentarily stop or slow the rotation of the transmission input shaft for easier gear engagement when the vehicle is stationary.

Release Bearing

A bearing that disables the transmission from the engine, commonly used in the operation of a vehicle's clutch system.

Clutch Cover

Part of the clutch assembly that encloses the clutch disc, pressure plate, and springs, protecting them and helping to engage or disengage the drive.