Which One of the Following Statements Concerning Beta Is Correct

question 45

Multiple Choice

Which one of the following statements concerning beta is correct?

• A) The beta assigned to the overall market is zero.
• B) A stock with a beta of 1.2 earns a higher risk premium than a stock with a beta of 1.3.
• C) A stock with a beta of 0.5 has 50 percent more risk than the overall market.
• D) Beta is applied to the T-bill rate when computing the discount rate used for the dividend discount models.
• E) The higher the beta, the higher the discount rate used for the dividend discount models.

---

Definitions:

Plowback Ratio

The proportion of earnings that a company retains and reinvests into its operations rather than distributing as dividends.

Dividend Payout Ratio

The fraction of net income a firm pays to its shareholders in dividends, expressed as a percentage.

Operating Capacity

The maximum output or production level that a facility or business can achieve under normal circumstances.

Internal Growth Rate

The maximum growth rate a firm can achieve without external financing while maintaining a stable financial structure.