Stock a Has a Beta of 0

question 97

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

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Definitions:

Head of Femur

The rounded, proximal end of the femur (thigh bone) that articulates with the acetabulum of the pelvis, forming the hip joint.

Anterior Cruciate Ligament

A key ligament located inside the knee joint that connects the thigh bone to the shin bone, crucial for stabilizing the knee.

Lateral Collateral Ligament

A ligament located on the lateral (outer) side of the knee, providing stability to the outer knee joint.