Stock a Has a Beta of 0

question 129

Multiple Choice

Stock A has a beta of 0.8 and Stock B has a beta of 1.2. 50% of Portfolio P is invested in Stock A and 50% is invested in Stock B. If the market risk premium (rM − rRF) were to increase but the risk-free rate (rRF) remained constant, which of the following would occur?

• A) The required return would increase for both stocks but the increase would be greater for Stock B than for Stock A.
• B) The required return would decrease by the same amount for both Stock A and Stock B.
• C) The required return would increase for Stock A but decrease for Stock B.
• D) The required return on Portfolio P would remain unchanged.
• E) The required return would increase for Stock B but decrease for Stock A.

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Definitions:

Neurological System

The nervous system and its components that regulate the body's activities.

Conversion Disorders

A mental condition in which a person experiences physical symptoms that are not explainable by medical conditions but are thought to be the result of psychological factors.

Somatic Symptom Disorders

A group of disorders characterized by significant focus on physical symptoms, such as pain, that cause major emotional distress and problems functioning.

True Medical Problems

Health issues that are identifiable through medical assessment and are not psychosomatic in nature.