A Stock You Are Holding Has a Beta of 2

question 25

Multiple Choice

A stock you are holding has a beta of 2.0 and the stock is currently in equilibrium.The required rate of return on the stock is 15% versus a required return on an average stock of 10%.Now the required return on an average stock increases by 30.0% (not percentage points) .The risk-free rate is unchanged.By what percentage (not percentage points) would the required return on your stock increase as a result of this event?

• A) 36.10%
• B) 38.00%
• C) 40.00%
• D) 42.00%
• E) 44.10%

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Definitions:

CPI

Consumer Price Index, a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care, used as an indicator of inflation.

Nuclear Missiles

Weapons of mass destruction powered by nuclear energy, capable of causing significant destruction and loss of life over a wide area.

CPI

Consumer Price Index, an indicator that measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

GDP Deflator

A measure of the price level of all domestically produced goods and services in a country and is used to convert output measured at current prices into constant-dollar GDP.