Risk-Free Rate Is 6%; Stock a Has a Beta of 1.0;

question 113

Multiple Choice

risk-free rate is 6%; Stock A has a beta of 1.0; Stock B has a beta of 2.0; and the market risk premium, rM − rRF, is positive.Which of the following statements is CORRECT?

• A)If the risk-free rate increases but the market risk premium stays unchanged, Stock B's required return will increase by more than Stock A's.
• B)Stock B's required rate of return is twice that of Stock A.
• C)If Stock A's required return is 11%, then the market risk premium is 5%.
• D)If Stock B's required return is 11%, then the market risk premium is 5%.
• E)If the risk-free rate remains constant but the market risk premium increases, Stock A's required return will increase by more than Stock B's.

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Definitions:

Connectivity

The state of being connected or interconnected, often referring to the ability of devices or systems to link with each other through communication paths.