Stock a Has a Beta (β) Equal to 2

question 67

Multiple Choice

Stock A has a beta (β) equal to 2.1 and Stock B has a beta equal to 0.7. 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 Stock A, rA, should be 2.1 times the required rate of return for Stock B, rB.
• B) The risk premium associated with Stock A, RPA, should be 2.1 times the risk premium associated with Stock B, RPB.
• C) The required rate of return for Stock A, rA, should be three times the required rate of return for Stock B, rB.
• D) The risk premium associated with Stock A, RPA, should be three times the risk premium associated with Stock B, RPB.
• E) The required rate of return for Stock A, rA, should be three times the risk premium associated with Stock A, RPA

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