HR Corporation Has a Beta of 2

question 21

Multiple Choice

HR Corporation has a beta of 2.0, while LR Corporation's beta is 0.5.The risk-free rate is 10%, and the required rate of return on an average stock is 15%.Now the expected rate of inflation built into rRF falls by 3 percentage points, the real risk-free rate remains constant, the required return on the market falls to 11%, and the betas remain constant.When all of these changes are made, what will be the difference in required returns on HR's and LR's stocks?

• A)1.0%
• B)2.5%
• C)4.5%
• D)5.4%
• E)6.0%

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Definitions:

Psychological Tests

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A statistical method used to describe variability among observed, correlated variables in terms of a potentially lower number of unobserved variables, called factors.

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