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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Definitions:

Representative

An individual who acts on behalf of others, typically in a political context, to voice their concerns and interests.

Reliable

Describes something or someone that consistently performs well or can be trusted to be accurate and truthful.

Deductive Arguments

Arguments where the conclusion is logically derived from general premises, intended to guarantee the conclusion's truth.

Smaller Sample

A subset of a population used in research or analysis that is less in number compared to the whole.