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:

Consumer Product Safety Act

A federal law in the United States that was enacted to protect consumers against unreasonable risks of injuries and deaths associated with consumer products.

Product Safety

The assurance that products will not cause harm to consumers or users when used as intended.

Mandatory Standards

Regulations that set specific requirements for the quality, performance, or safety of products or services, and must be followed by manufacturers or service providers.

Fair and Accurate Credit Transactions Act

A federal law enacted to enhance consumer protection against identity theft and to improve the accuracy of consumer records.