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.

Understand the role of participative management and its effect on employee commitment and creativity.

Understand the impact of social connections and belonging on workplace motivation and engagement.

Understand the importance of matching job applicants' qualities with job requirements for organizational success.

Recognize the role of positive reinforcement in encouraging productive behaviors in the workplace.

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Definitions:

Management Manipulation

The unethical practice of altering financial data or reports to distort a company’s financial health or performance.

Asset Impairments

A reduction in the book value of an asset when its market value falls below its carrying amount on the balance sheet.

Fair Value

The estimated market price of an asset or liability based on current conditions and mutually informed buyer and seller transactions.

Construction in Progress Account

An account in the balance sheet that accumulates costs related to the construction of a long-term asset until the asset is ready for use, at which point the total cost is transferred to the fixed assets account.