Company a Has a Beta of 0

question 17

Multiple Choice

Company A has a beta of 0.70,while Company B's beta is 1.45.The required return on the stock market is 9.00%,and the risk-free rate is 2.25%.What is the difference between A's and B's required rates of return? (Hint: First find the market risk premium,then find the required returns on the stocks. ) Do not round your intermediate calculations.

• A) 5.06%
• B) 5.01%
• C) 4.71%
• D) 4.30%
• E) 4.25%

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Definitions:

Shares

Units of ownership interest in a corporation or financial asset, providing an equitable distribution of profits, if any, in the form of dividends.

Takeover Bids

Proposals or offers made by one company to purchase a controlling stake in another company.

Securities Regulation

Legal framework governing the issuance, trading, and overall market behavior of securities to protect investors, maintain fair markets, and ensure capital formation.

Fairness

The quality of being just, equitable, and impartial in decision making and treatment of others.