Stock a Has a Beta = 0

question 31

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:

Secure Neighborhood

A residential area that is well-guarded or designed with safety measures to protect residents and property.

Expected Loss

The anticipated amount of loss a party faces in a financial transaction or investment, calculated based on probable scenarios.

Secure Neighborhood

An area with enhanced safety measures, possibly including gated access, security personnel, and surveillance systems, aimed at reducing crime.

Insurance Premium

The amount paid periodically to an insurance company by the insured for covering their risk.