Stock X Has a Beta of 0

question 4

Multiple Choice

Stock X has a beta of 0.7 and Stock Y has a beta of 1.7.Which of the following statements must be true, according to the CAPM?

• A) Stock Y's realized return during the coming year will be higher than Stock X's return.
• B) If the expected rate of inflation increases but the market risk premium is unchanged, the required returns on the two stocks should 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.
• E) If you invest $50,000 in Stock X and $50,000 in Stock Y, your 2-stock portfolio would have a beta significantly lower than 1.0, provided the returns on the two stocks are not perfectly correlated.

---

Definitions:

HR Professionals

Individuals who work within an organization's human resources department, focusing on recruitment, management, and guidance of the company's employees.

Environmental Threat

Potential harmful effects on an organization stemming from external environmental factors, such as economic shifts, regulatory changes, or natural disasters.

Strategic HR Planning

The process of aligning human resource management strategies with the overall strategic objectives of an organization to optimize workforce performance and meet future business needs.

Environmental Scanning

The act of examining the external factors influencing an organization's environment to identify trends, opportunities, and threats that could impact future operations.