Stock X Has a Beta of 0

question 65

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

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