Stock X Has a Beta of 0

question 3

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

---

Definitions:

Psychoanalyst

A therapist trained in Freudian methods who seeks to analyze and treat mental disorders through exploring the unconscious mind.

Environmental Factors

External elements, including physical, chemical, and biological agents, that can affect health or the functioning of organisms and ecosystems.

Heredity Factors

The genetic components passed down from parents to offspring, influencing traits and predisposition to certain conditions or behaviors.

Free Will

The concept that humans have the capacity to make choices that are not predetermined by past events, genetic makeup, or current environmental factors.