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 importance of random assignment in experimental design.

Identify and interpret the significance of confounding variables and lurking variables in experiments.

Understand the role of double-blind procedures in minimizing bias.

Recognize the importance of blocking and stratification in enhancing the accuracy of experimental results.

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Definitions:

Murmur

A sound heard during a heartbeat cycle, often using a stethoscope, that can indicate normal or abnormal heart activity.

Radial Pulse

The pulse felt over the radial artery at the wrist, commonly used to measure heart rate.

Heart

A muscular organ in most animals, which pumps blood through the circulatory system by rhythmic contraction and dilation.

Rate

The speed or frequency at which an event or action occurs within a specified period.