Stock a Has a Beta = 0

question 131

Multiple Choice

Stock A has a beta = 0.8, while Stock B has a beta = 1.6.Which of the following statements is CORRECT?

• A) If the marginal investor becomes more risk averse, the required return on Stock B will increase by more than the required return on Stock A.
• B) An equally weighted portfolio of Stocks A and B will have a beta lower than 1.2.
• C) If the marginal investor becomes more risk averse, the required return on Stock A will increase by more than the required return on Stock B.
• D) If the risk-free rate increases but the market risk premium remains constant, the required return on Stock A will increase by more than that on Stock B.
• E) Stock B's required return is double that of Stock A's.

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Definitions:

Debt-to-equity Ratio

This ratio showcases the relative amounts of debt and shareholders' equity employed to support a company's asset investments.

Times Interest Earned Ratio

A financial ratio measuring a company's ability to meet its interest obligations based on current earnings, indicating financial stability.

Net Profit Margin Percentage

A financial metric that shows the percentage of profit a company makes for every dollar of sales, calculated by dividing net profit by total revenue.

Average Sale Period

A financial metric measuring the average time it takes for a company's inventory to turn into sales, often seen as part of inventory turnover analysis.