Stock a Has a Beta of 0

question 116

Multiple Choice

Stock A has a beta of 0.8 and Stock B has a beta of 1.2.50% of Portfolio P is invested in Stock A and 50% is invested in Stock B.If the market risk premium (r_M F-r_RF) were to increase but the risk-free rate (r_RF) remained constant,which of the following would occur?

• A) The required return would decrease by the same amount for both Stock A and Stock B.
• B) The required return would increase for Stock A but decrease for Stock B.
• C) The required return on Portfolio P would remain unchanged.
• D) The required return would increase for Stock B but decrease for Stock A.
• E) The required return would increase for both stocks but the increase would be greater for Stock B than for Stock A.

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Definitions:

Self-fulfilling Prophesy

A prediction that directly or indirectly causes itself to become true, by the very terms of the prophecy itself, due to positive feedback between belief and behavior.

Rationalization

A defense mechanism where logical, acceptable explanations are given for behaviors that are actually driven by subconscious motives.

Thematic Apperception Test

A projective psychological test that asks respondents to tell stories about ambiguous pictures, aimed at uncovering their underlying thoughts, feelings, and attitudes.

Rorschach Test

A psychological test in which subjects' perceptions of inkblots are recorded and analyzed to assess personality traits and emotions.