Stock a Has a Beta of 0

question 31

Multiple Choice

Stock A has a beta of 0.7,whereas Stock B has a beta of 1.3.Portfolio P has 50% invested in both A and B.Which of the following would occur if the market risk premium increased by 1%? (Assume that the risk-free rate remains constant.)

• A)The required return on Portfolio P would increase by 1%.
• B)The required return on both stocks would increase by 1%.
• C)The required return on Portfolio P would remain unchanged.
• D)The required return on Stock A would increase by more than 1%, while the return on Stock B would increase by less than 1%.

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