Assume That the Risk-Free Rate Is 5

question 55

Multiple Choice

Assume that the risk-free rate is 5%.Which of the following statements is CORRECT?

• A) If a stock's beta doubled, its required return under the CAPM would also double.
• B) If a stock's beta doubled, its required return under the CAPM would more than double.
• C) If a stock's beta were 1.0, its required return under the CAPM would be 5%.
• D) If a stock's beta were less than 1.0, its required return under the CAPM would be less than 5%.
• E) If a stock has a negative beta, its required return under the CAPM would be less than 5%.

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Definitions:

Significance Level

The threshold below which a p-value is considered statistically significant, typical levels are 0.05, 0.01, etc., indicating the probability of rejecting the null hypothesis when it is true.

Normal Population

A population in which the data follows a normal distribution, characterized by a bell-shaped curve where most observations cluster around the central peak and probabilities for values taper off symmetrically towards the extremes.

Hypotheses

Proposed explanations or predictions that are based on limited evidence as a starting point for further investigation.

Level of Significance

The probability threshold under which a null hypothesis is rejected in hypothesis testing, often denoted by alpha.