Nile Foods' Stock Has a Beta of 1

question 62

Multiple Choice

Nile Foods' stock has a beta of 1.4, while Elba Eateries' stock has a beta of 0.7. Assume that the risk- free rate, rRF, is 5.5% and the market risk premium, (rM - rRF) , equals 4%. Which of the following statements is correct?

• A) If the risk-free rate increases but the market risk premium remains unchanged, the required return will increase for both stocks but the increase will be larger for Nile since it has a higher beta.
• B) If the market risk premium increases but the risk-free rate remains unchanged, Nile's required return will increase because it has a beta greater than 1.0 but Elba's will decline because it has a beta less than 1.0.
• C) Since Nile's beta is twice that of Elba's, its required rate of return will also be twice that of Elba's.
• D) If the risk-free rate increases while the market risk premium remains constant, then the required return on an average stock will increase.

Identify the assumptions and expectations before the implementation of economic policy.

Analyze the effects of anticipated and unanticipated policies on inflation and output.

Comprehend the significance of policy credibility and time inconsistency in economic policy.

Grasp the views and conclusions of the rational expectations school regarding monetary and fiscal policy.

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Definitions:

Theory of Mind

A cognitive skill that enables individuals to understand that others have their own beliefs, desires, and intentions that are different from one's own.

Cognitive Structures

Mental frameworks that help individuals organize and interpret information, fundamental to learning and understanding the world.

Beliefs and Feelings

Internal cognitive and emotional states that influence an individual's perceptions and actions.

Moral Development

Refers to the process by which individuals acquire the standards of morality and ethics, understanding the difference between right and wrong.