Stock X Has a Beta of 0

question 60

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)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.
• B)Stock Y must have a higher expected return and a higher standard deviation than Stock X.
• C)If expected inflation increases (but the market risk premium is unchanged), the required return on both stocks will decrease by the same amount.
• D)If the market risk premium decreases but expected inflation is unchanged, the required return on both stocks will decrease, but the decrease will be greater for Stock Y.

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Definitions:

Process Costing

A rephrased definition: An accounting methodology employed to evaluate the cost of producing products that undergo similar processes in large quantities.

Underapplied Overhead

A situation where the allocated or applied factory overhead costs are less than the actual overhead costs incurred, resulting in a cost variance.

Cost of Goods Sold

The cost of goods sold (COGS) is the direct cost attributable to the production of goods sold by a company, including the cost of materials and labor.

Period Costs

Costs that are expensed in the period in which they are incurred; they are not tied directly to the production process and include items like sales, general, and administrative expenses.