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%

---

Definitions:

Brachiocephalic Vein

A large vein in the upper chest that transports deoxygenated blood from the upper limbs, neck, and head to the heart.

External Jugular Vein

A vein located on the outside of the sternocleidomastoid muscle, draining blood from the face, neck, and scalp into the subclavian vein.

Anterior Vena Cava

A large vein that carries deoxygenated blood from the upper half of the body to the right atrium of the heart.

Cephalic Vein

A large vein running along the outer side of the arm from the hand to the shoulder, often used for intravenous injections or blood draw.