Stock X Has a Beta of 0

question 17

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 CAPMσ

• 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.

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