Stock a Has a Beta of 0

question 129

Multiple Choice

Stock A has a beta of 0.8 and Stock B has a beta of 1.2. 50% of Portfolio P is invested in Stock A and 50% is invested in Stock B. If the market risk premium (rM − rRF) were to increase but the risk-free rate (rRF) remained constant, which of the following would occur?

• A) The required return would increase for both stocks but the increase would be greater for Stock B than for Stock A.
• B) The required return would decrease by the same amount for both Stock A and Stock B.
• C) The required return would increase for Stock A but decrease for Stock B.
• D) The required return on Portfolio P would remain unchanged.
• E) The required return would increase for Stock B but decrease for Stock A.

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Definitions:

DSM-5

The Diagnostic and Statistical Manual of Mental Disorders, Fifth Edition, a comprehensive classification of mental disorders by the American Psychiatric Association.

Less Categorical

Pertains to approaches or classifications that are less rigid and more flexible.

Personality Disorders

Personality disorders are a class of mental disorders characterized by enduring maladaptive patterns of behavior, cognition, and inner experience, shown across many contexts and deviating from cultural norms.

Rigid Personality Traits

Characteristics of an individual that are inflexible and resistant to change, often leading to difficulties in relationships and adapting to new situations.