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:

Categorical Variables

Variables that represent categories and can take on values that are names or labels.

Dummy Variables

In statistical modeling, these are artificial variables created to represent an attribute with two or more distinct categories or levels.

Regression Analysis

A statistical method used to explore the relationship between a dependent variable and one or more independent variables.

Sum Of Squares

A statistical technique used to measure the dispersion or variation within a data set by squaring the differences from the mean and summing all the resulting squares.