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:

T Value

A statistic calculated in a T-test that measures the size of the difference relative to the variation in your sample data.

Homogeneity-of-Variance

The assumption that different samples in a study have the same variance or variability, often checked before applying certain statistical tests.

T Test

A statistical test used to compare the means of two groups and determine if there are statistically significant differences between them.

Pooled Standard Deviation

A method for calculating the overall standard deviation from multiple samples or groups, combining variances to assess overall variability.