Stock X Has a Beta of 0

question 60

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), the required return on both stocks will decrease by the same amount.
• D)If the market risk premium decreases 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:

Automatic Stabilizers

Economic measures and initiatives, like taxation and unemployment insurance, that naturally adapt to mitigate the effects of economic changes without direct action from the government.

Discretionary Fiscal Policy

Changes in government spending and taxes to promote full employment, price stability, and economic growth.

Fiscal Policy

Governmental use of spending and taxation to influence the economy.

Government Spending

Expenditures by the government for its operations, programs, and debt payments, which can influence the economy's overall performance.