Beta is a measure of a stock’s risk in relation to the market or, in other words, it represents the systematic risk of a stock. Systematic risk is the risk that affects all securities in the market, and it cannot be eliminated through diversification. It is influenced by factors such as inflation rates, exchange rates, political instability, war, and financial policies.

In the context of this question, the country is facing a major financial crisis. This event is a systemic risk as it affects all securities in the market. In such a scenario, the riskiness of the stock increases. Therefore, the beta of the stock, which measures this risk, would also increase. This is why the beta would be higher than 1.2 in the event of a financial crisis.

It’s important to note that the beta of a stock is not constant. It changes to reflect the prevailing market conditions. Therefore, it’s reasonable to expect that the beta would increase in a situation where the market risk has increased due to a financial crisis.

Choice A is incorrect. The beta of the stock is not expected to remain at 1.2 during a financial crisis. Beta measures the systematic risk of a stock, which includes market-wide risks that cannot be diversified away. During a financial crisis, these risks are likely to increase, leading to an increase in beta.

Choice C is incorrect. The beta of the stock is not expected to decrease below 1.2 during a financial crisis. As mentioned above, beta measures systematic risk and this risk tends to increase during periods of financial instability or crises due to increased uncertainty and volatility in the market.

Choice D is incorrect. The beta of the stock will not necessarily equal 1 during a financial crisis. A beta value of 1 implies that the security’s price will move with the market, but given that we are in a period of increased uncertainty and volatility due to the crisis, it’s more likely for the beta value to be higher than 1 as it would reflect greater sensitivity and responsiveness towards changes in market conditions.