Stock a Has a Beta of 1

question 106

Multiple Choice

Stock A has a beta of 1.2 and a standard deviation of returns of 14%.Stock B has a beta of 1.8 and a standard deviation of returns of 18%.If the risk-free rate of return increases and the market risk premium remains constant,then

• A) the required return on stock B will increase more than the required return on stock A.
• B) the required returns on stocks A and B will both increase by the same amount.
• C) the required returns on stocks A and B will not change.
• D) the required return on stock A will increase more than the required return on stock B.

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Definitions:

Partnership

A voluntary association between two or more people who co-own a business for profit.

Share Classes

Categories of stock in a company, each with different rights, privileges, and restrictions.

Business Judgment Rule

A legal principle that protects corporate directors and officers from liability for decisions made in good faith and believed to benefit the company.

Action Against Directors

Legal proceedings brought against the directors of a company for negligence, breach of duty, or other wrongdoing.