Stock a Has a Beta = 0

question 36

Multiple Choice

Stock A has a beta = 0.8,while Stock B has a beta = 1.6.Which of the following statements is correct?

• A)Stock B's required return is double that of Stock A's.
• B)If the marginal investor becomes more risk averse, the required return on Stock B will increase by more than the required return on Stock A.
• C)An equally weighted portfolio of Stocks A and B will have a beta lower than 1.2.
• D)If the risk-free rate increases but the market risk premium remains constant, the required return on Stock A will increase by more than that on Stock B.

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Definitions:

Taxable Income

Taxable income is the amount of an individual's or a company's income used to calculate how much tax they owe to the government in a given tax year.

Tax Advantage

Financial benefits granted by government taxation policies, such as deductions, exclusions, or credits, to encourage certain activities or investments.

Net Realizable Value

The estimated selling price of goods minus the cost of their sale or completion.

Sales Price

The amount a buyer pays to purchase a product or service.