Stock a Has a Beta = 0

question 18

Multiple Choice

Stock A has a beta = 0.8,while Stock B has a beta = 1.6.Which of the following statements is CORRECT?

• A) Stock B's required return is double that of Stock A's.
• B) If the marginal investor becomes more risk averse,the required return on Stock B will increase by more than the required return on Stock A.
• C) An equally weighted portfolio of Stocks A and B will have a beta lower than 1.2.
• D) If the marginal investor becomes more risk averse,the required return on Stock A will increase by more than the required return on Stock B.
• E) If the risk-free rate increases but the market risk premium remains constant,the required return on Stock A will increase by more than that on Stock B.

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Definitions:

IPO

Initial Public Offering, the process by which a private company goes public by offering its stocks to the public for the first time.

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Unaided Recall Test

A measure of memory in which participants are asked to remember information without being given cues or hints.

Benchmark Test

An evaluation or test that uses a set of standards or an established reference point to measure the performance of a product or service.