The Risk-Free Rate Is 6%;Stock a Has a Beta of 1.0;Stock

question 34

Multiple Choice

The risk-free rate is 6%;Stock A has a beta of 1.0;Stock B has a beta of 2.0;and the market risk premium,r_M - r_RF,is positive.Which of the following statements is CORRECT?

• A) If the risk-free rate increases but the market risk premium stays unchanged,Stock B's required return will increase by more than Stock A's.
• B) Stock B's required rate of return is twice that of Stock A.
• C) If Stock A's required return is 11%,then the market risk premium is 5%.
• D) If Stock B's required return is 11%,then the market risk premium is 5%.
• E) If the risk-free rate remains constant but the market risk premium increases,Stock A's required return will increase by more than Stock B's.

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Definitions:

Cognitive Therapy

A type of psychological treatment that helps individuals challenge and change unhelpful cognitive distortions and behaviors, improve emotional regulation, and develop personal coping strategies.

Emotional Health

A state of well-being in which an individual realizes his or her own abilities, can cope with the normal stresses of life, can work productively, and is able to make a contribution to his or her community.

Cognitive Therapist

A mental health specialist who focuses on identifying and changing negative or inaccurate thought patterns to treat psychological disorders.

Evidence

Information, facts, or data that are used to support a conclusion, argument, or belief.