The Beta of Stock a Is 2

question 13

Multiple Choice

The beta of Stock A is 2.1. The risk-free rate is 6 percent, and the market return is 13 percent. The expected rate of return of Stock A is 15.5 percent. Based on the above information, which of the following statements is true?

• A)An investor should buy Stock A because its expected rate of return is less than the required rate of return.
• B)An investor should buy Stock A because its expected rate of return is greater than the required rate of return.
• C)An investor should not buy Stock A because its expected rate of return is greater than the required rate of return.
• D)An investor should not buy Stock A because its expected rate of return is less than the required rate of return.
• E)An investor should be indifferent towards buying or selling the stock.

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