Stock Q Has a Beta (β) Equal to 1

question 55

Multiple Choice

Stock Q has a beta (β) equal to 1.6 and Stock P has a beta equal to 0.8.Based on this information, according to the capital asset pricing model (CAPM) , which of the following statements is correct?

• A)The required rate of return for Stock Q, rQ, should be 1.6 times greater than the required rate of return for Stock P, rP.
• B)The risk premium associated with Stock Q, RPQ, should be 1.6 times greater than the risk premium associated with Stock P, RPP.
• C)The required rate of return for Stock Q, rQ, should be two times greater than the required rate of return for Stock P, rP.
• D)The risk premium associated with Stock Q, RPQ, should be two times greater than the risk premium associated with Stock P, RPP.
• E)None of the above is a correct answer.

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Definitions:

Note Taking Skills

Techniques and strategies for recording information from lectures, readings, or other sources, aimed at enhancing understanding and retention.

Test Anxiety

The nervousness or fear often experienced before or during test situations, which can affect performance.

Memory Techniques

Strategies or methods employed to enhance one's ability to remember information, such as mnemonic devices or the method of loci.

Negative Thoughts

Thoughts that are often pessimistic or diminish one’s self-esteem, potentially leading to negative outcomes in behaviors and emotions.