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.

---

Definitions:

Mastery Orientation

An approach to learning and achievement that focuses on gaining new skills, improving competence, and understanding material, rather than a focus on outward success.

Fixed Mindsets

The belief that one's abilities, intelligence, and talents are static traits which cannot be significantly developed.

Cross-race Friendships

Relationships between individuals of different racial backgrounds, which can enhance cultural understanding and reduce biases.

Peer Victimization

The experience of being targeted and harmed by peers, including bullying and harassment.