Gretta's Portfolio Consists of $700,000 Invested in a Stock That

question 41

Multiple Choice

Gretta's portfolio consists of $700,000 invested in a stock that has a beta of 1.2 and $300,000 invested in a stock that has a beta of 0.8.The risk-free rate is 6% and the market risk premium is 5%.Which of the following statements is CORRECT?

• A) The required return on the market is 10%.
• B) The portfolio's required return is less than 11%.
• C) If the risk-free rate remains unchanged but the market risk premium increases by 2%, Gretta's portfolio's required return will increase by more than 2%.
• D) If the market risk premium remains unchanged but expected inflation increases by 2%, Gretta's portfolio's required return will increase by more than 2%.
• E) If the stock market is efficient, Gretta's portfolio's expected return should equal the expected return on the market, which is 11%.

---

Definitions:

Requirements

Conditions or specifications that must be met or complied with.

Preauthorized Payments

Financial transactions that are scheduled to recur at predetermined intervals, where funds are automatically transferred from an individual's bank account or credit card to pay for services or goods.

EFTs

Electronic Funds Transfers, which refer to the digital transfer of money between accounts, often across banking institutions, without the need for physical exchange of cash.

Bank's Obligation

The legal and ethical duties a bank owes to its customers, including confidentiality, fair treatment, and the proper handling of transactions.