Share Q Has a Beta $\beta$ )) Equal to 1

question 51

Multiple Choice

Share Q has a beta ( $\beta$ ) .) equal to 1.6 and Share P has a beta equal to 0.8.Based on this information, according to the capital asset pricing model (CAPM) , which of the following statements is correct?

• A) The required rate of return for Share Q, rQ, should be 1.6 times greater than the required rate of return for Share P, rP.
• B) The risk premium associated with Share Q, RPQ, should be 1.6 times greater than the risk premium associated with Share P, RPP.
• C) The required rate of return for Share Q, rQ, should be two times greater than the required rate of return for Share P, rP.
• D) The risk premium associated with Share Q, RPQ, should be two times greater than the risk premium associated with Share P, RPP.
• E) None of the above is a correct answer.

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Definitions:

Overall Efficiency

The effectiveness with which a system, such as an economy or a production process, utilizes resources to achieve its objectives, maximizing output with minimal waste.

Operations

The day-to-day activities involved in managing a business, including production, logistics, and delivery of goods and services.

Proprietor's Income

Represents the earnings of the owner of a business, factoring in revenue minus expenses and taxes.

Unincorporated Enterprises

Businesses that are not legally separated from their owners, meaning the owner is personally liable for the debts of the business.