Stock a Has a Beta of 0

question 122

Multiple Choice

Stock A has a beta of 0.7,whereas Stock B has a beta of 1.3.Portfolio P has 50% invested in both A and B.Which of the following would occur if the market risk premium increased by 1% but the risk-free rate remained constant?

• A) The required return on Portfolio P would increase by 1%.
• B) The required return on both stocks would increase by 1%.
• C) The required return on Portfolio P would remain unchanged.
• D) The required return on Stock A would increase by more than 1%,while the return on Stock B would increase by less than 1%.
• E) The required return for Stock A would fall,but the required return for Stock B would increase.

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Definitions:

Covalent Bonds

Chemical bonds formed by the sharing of electron pairs between atoms.

Electronegativity

Electronegativity is a chemical property that describes the tendency of an atom to attract electrons towards itself in a chemical bond.

Valence Bond Theory

A theory that explains how electrons are shared between atoms to form chemical bonds, focusing on the concept of hybridization of atomic orbitals.

Orbitals

Mathematical functions describing the regions around an atom where electrons are most likely to be found.