Assume That the Risk-Free Rate Is 5

question 63

Multiple Choice

Assume that the risk-free rate is 5%.Which of the following statements is CORRECT?

• A) If a stock has a negative beta,its required return under the CAPM would be less than 5%.
• B) If a stock's beta doubled,its required return under the CAPM would also double.
• C) If a stock's beta doubled,its required return under the CAPM would more than double.
• D) If a stock's beta were 1.0,its required return under the CAPM would be 5%.
• E) If a stock's beta were less than 1.0,its required return under the CAPM would be less than 5%.

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Definitions:

Expected Future Cash Flows

The estimated amount of money that is anticipated to be generated from an investment, project, or asset over a period of time in the future.

Financial Statement Item

Any line item or component that appears in financial statements, such as balance sheet, income statement, or cash flow statement, representing a company's financial position or performance.

Unreliable

Not able to be trusted or depended upon for accuracy or truthfulness.

Firm's Shares

Equity securities issued by a company, representing ownership in the firm and entitling holders to dividends and voting rights.