Stock a Has a Beta of 0

question 58

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 (r_M − r_RF) were to increase but the risk-free rate (r_RF) 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.

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Definitions:

Low-Cost Strategy

Low-cost strategy is a competitive approach where a company aims to become the lowest cost producer in its industry, offering products or services at a price lower than its competitors to attract cost-sensitive customers.

Differentiation Strategy

A business strategy where a company seeks to distinguish its products or services from competitors, typically through quality, design, or unique features.

Profitable Growth

An increase in revenue that leads to enhanced profitability, reflecting both expansion and efficient operations.

Transnational Strategy

A business strategy that involves operating in various countries around the world, recognizing both global efficiency and local responsiveness.