Stock X Has a Beta of 0

question 94

Multiple Choice

Stock X has a beta of 0.5 and Stock Y has a beta of 1.5. Which of the following statements MUST be true, according to the CAPM?

• A) Stock Y's return during the coming year will be higher than Stock X's return.
• B) If expected inflation increases but the market risk premium is unchanged, the required returns on the two stocks will 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.

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Definitions:

Aggregate Demand Curve

A graphical representation showing the relationship between the overall price level and the total demand for goods and services in an economy.

Aggregate Supply Curve

A graph that shows the relationship between the overall price level in the economy and the total output produced by firms, holding all else constant.

Price Level

Price Level is a measure of the average prices of goods and services in an economy, indicating the purchasing power of the currency and cost of living.

Real GDP

Real GDP, or Gross Domestic Product adjusted for inflation, measures the value of all final goods and services produced within a country in a given period, accounting for changes in price level.