Stock a Has a Beta = 0

question 131

Multiple Choice

Stock A has a beta = 0.8, while Stock B has a beta = 1.6.Which of the following statements is CORRECT?

• A) If the marginal investor becomes more risk averse, the required return on Stock B will increase by more than the required return on Stock A.
• B) An equally weighted portfolio of Stocks A and B will have a beta lower than 1.2.
• C) If the marginal investor becomes more risk averse, the required return on Stock A will increase by more than the required return on Stock B.
• D) If the risk-free rate increases but the market risk premium remains constant, the required return on Stock A will increase by more than that on Stock B.
• E) Stock B's required return is double that of Stock A's.

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Definitions:

Cost Formula

An equation used to determine the total cost of production or operations by accounting for both fixed and variable expenses.

Maintenance Cost

Expenses incurred in the regular upkeep and repair of equipment, buildings, or machinery to ensure efficient operation and prevent breakdowns.

Contribution Margin

The difference between the sales revenue of a product and its variable costs, used to cover fixed costs and generate profit.

Sales Revenues

The total amount of money generated from sales of goods or services before any expenses are subtracted.