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:

Stock Split

A corporate action in which a company divides its existing shares into multiple shares to boost the liquidity of the shares, although the overall value of the company doesn't change.

Book Value

The net value of a company's assets minus its liabilities, often used to evaluate its financial health.

Market Value

The ongoing price for buying or selling an asset or service in the market.

Stock Split

The division of a company's existing stock into multiple shares to boost market liquidity without affecting shareholders' equity.