Stock a Has a Beta of 0

question 39

Multiple Choice

Stock A has a beta of 0.8 and Stock B has a beta of 1.2.Fifty percent of Portfolio P is invested in Stock A and 50% is invested in Stock B.If the market risk premium (r_M - r_RF) were to increase but the risk-free rate (r_RF) remained constant,which of the following would occur?

• A)The required return will increase for both stocks but the increase will be greater for Stock B than for Stock A.
• B)The required return will decrease by the same amount for both Stock A and Stock B.
• C)The required return will increase for Stock A but will decrease for Stock B.
• D)The required return on Portfolio P will remain unchanged.

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Definitions:

Total Revenue

The total income a firm receives from the sale of its goods or services, calculated by multiplying the price by the quantity sold.

Unit Price

The cost per unit of a product or service, making it easier to compare the prices of different sizes or quantities.