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 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.

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Definitions:

Social Pain

Emotional pain experienced as a result of social rejection, loss, or isolation, which can significantly affect mental health and well-being.

Anterior Cingulate Cortex

A region of the brain involved in emotion formation and processing, learning, and memory.

Pain Receptors

Specialized nerve endings found throughout the body that detect painful stimuli and send signals to the brain, officially known as nociceptors.

Afferent

Referring to nerve fibers that carry sensory signals toward the central nervous system.