Stock X Has a Beta of 0

question 103

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 CORRECTσ

• 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.

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Definitions:

Low Opportunity Cost

A situation where the cost of foregoing the next best alternative is relatively minimal when choosing one option over another.

Computer Software

Programs and operating information used by a computer to perform specific tasks.

Law Of Comparative Advantage

is an economic principle that states countries (or entities) gain when they produce goods and services for which they have a lower opportunity cost, leading to more efficient global production.

Low-Opportunity Cost Producer

An entity that can produce a good or service at a lower sacrifice of alternative goods compared to others.