Stock X Has a Beta of 0

question 82

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.

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Definitions:

Marion Petrie

A researcher known for her work on sexual selection, particularly regarding the role of peacock tail feathers in attracting mates.

Sexual Selection Model

A theoretical construct that explains how certain traits are favored because they increase an individual's chances of reproductive success.

Direct Benefits

Advantages that directly affect an individual's survival or reproduction, typically gained through mate choice or specific behaviors.

Indirect Benefit

Advantages gained by an individual from choosing a particular mate that affect the genetic quality of their offspring rather than providing immediate gains.