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

question 98

Multiple Choice

The 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:

Pulse

Throbbing caused by the regular alternating contraction and expansion of an artery.

Blood Pressure

The pressure of circulating blood against the walls of blood vessels, often measured as an indicator of heart health.

Superficial

On the surface.