HR Corporation Has a Beta of 2

question 45

Multiple Choice

HR Corporation has a beta of 2.0, while LR Corporation's beta is 0.5.The risk-free rate is 10%, and the required rate of return on an average share is 15%.Now the expected rate of inflation built into kRF falls by 3 percentage points, the real risk-free rate remains constant, the required return on the market falls to 11%, and the betas remain constant.When all of these changes are made, what will be the difference in required returns on HR's and LR's shares?

• A) 1.0%
• B) 2.5%
• C) 4.5%
• D) 5.4%
• E) 6.0%

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Definitions:

Reaction

A process in which one or more substances are changed into one or more new substances through the reorganization of molecular or ionic structures.

Major Organic Product

The primary product of a chemical reaction, typically formed in the greatest amount compared to other products.

Methylpropane

Another term for isobutane, a branched alkane with the formula \(C_4H_{10}\), used as a refrigerant and a propellant in aerosol sprays.

Methyl Isobutyrate

An organic compound with the formula C5H10O2, used as a flavoring agent and solvent.