Stock a Has a Beta Coefficient (β) Equal to 2

question 68

Multiple Choice

Stock A has a beta coefficient (β) equal to 2.1, and Stock B has a beta coefficient (β) equal to 0.7. According to the capital asset pricing model (CAPM) , which of the following statements is correct?

• A)The required rate of return for Stock A, rA, should be 2.1 times the required rate of return for Stock B, rB.
• B)The risk premium associated with Stock A, RPA, should be 2.1 times the risk premium associated with Stock B, RPB.
• C)The required rate of return for Stock A, rA, should be three times the required rate of return for Stock B, rB.
• D)The risk premium associated with Stock A, RPA, should be three times the risk premium associated with Stock B, RPB.
• E)The required rate of return for Stock A, rA, should be three times the risk premium associated with Stock A, RPA.

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Definitions:

Supply Curve

The supply curve is a graphical representation showing the relationship between the price of a good and the quantity of the good that producers are willing and able to supply at various prices.

Commodity Increases

Refers to a rise in the quantity supplied or demanded of a good or service, often due to factors like price changes, improvements in technology, or shifts in consumer preferences.

Quantity Supplied

The amount of a good or service that producers are willing and able to sell at a given price over a specified period.

Supply Curve

A graphical representation of the relationship between the price of a good and the quantity supplied.