Stock a Has a Beta of 0

question 18

Multiple Choice

Stock A has a beta of 0.7, whereas Stock B has a beta of 1.3.Portfolio P has 50% invested in both A and B.Which of the following would occur if the market risk premium increased by 1% but the risk-free rate remained constant?

• A) The required return on both stocks would increase by 1%.
• B) The required return on Portfolio P would remain unchanged.
• C) The required return on Stock A would increase by more than 1%, while the return on Stock B would increase by less than 1%.
• D) The required return for Stock A would fall, but the required return for Stock B would increase.
• E) The required return on Portfolio P would increase by 1%.

---

Definitions:

Species

A fundamental category in biological classification, defined as a group of living organisms consisting of similar individuals capable of exchanging genes or interbreeding.

Pandemic

An outbreak of a disease that occurs over a wide geographic area and affects an exceptionally high proportion of the population.

Spreads

The extension, distribution, or dissemination of something over an area or among individuals, which can refer to diseases, ideas, or substances.

Vaccinated

The state of having received a vaccine, which introduces a small, harmless piece of a virus or bacteria to stimulate the immune system to prepare for future exposure to the disease.