Assume That the Risk-Free Rate Is 6% and the Market

question 112

Multiple Choice

Assume that the risk-free rate is 6% and the market risk premium is 5%. Given this information, which of the following statements is CORRECT?

• A) An index fund with beta = 1.0 should have a required return of 11%.
• B) If a stock has a negative beta, its required return must also be negative.
• C) An index fund with beta = 1.0 should have a required return less than 11%.
• D) If a stock's beta doubles, its required return must also double.

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Definitions:

Significance Level

The odds of wrongly rejecting the null hypothesis in statistical research, often indicated by the letter alpha.

Market Share

The percentage of total sales in an industry generated by a particular company, indicating its size relative to competitors.

Chi-squared Goodness-of-fit Test

A statistical test used to determine if observed data fits a theoretical frequency distribution.

Apple Types

Refers to the different varieties or cultivars of apples, distinguished by attributes such as flavor, color, and size.