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.

---

Definitions:

Gold or Silver

Refers to the historical debate and political movement in the late 19th century United States advocating for the free coinage of silver in addition to gold to expand the money supply.

Nullification Crisis

A political crisis in the early 1830s involving a confrontation between South Carolina and the federal government over the state's attempt to nullify federal tariffs.

Constitutional Validity

The legal status of a law, regulation, or action being in accordance with the constitution of a country or state, determining if it upholds the principles and rules of the constitution.

Compromise Tariff

A tariff agreement designed to resolve or mitigate a specific conflict or dispute between parties, often involving concessions from both sides.