HR Corporation Has a Beta of 2

question 68

Multiple Choice

HR Corporation has a beta of 2.0,while LR Corporation's beta is 0.5.The risk-free rate is 10%,and the required rate of return on an average stock is 15%.Now the expected rate of inflation built into kRF falls by 3 percentage points,the real risk-free rate remains constant,the required return on the market falls to 11%,and the betas remain constant.When all of these changes are made,what will be the difference in required returns on HR's and LR's stocks?

• A) 1.0%
• B) 2.5%
• C) 4.5%
• D) 5.4%
• E) 6.0%

---

Definitions:

Generalization

The process of extending the application of a statement to include a larger number of cases or instances.

Prostate Cancer

A form of cancer that develops in the prostate gland of men, characterized by the abnormal growth of cells that can spread to other parts of the body.

High-Dose Steroids

High-dose steroids refer to the utilization of large quantities of corticosteroid medications, often used to reduce inflammation and suppress the immune system in various medical conditions.

Right to Self-Determination

The principle that individuals have the freedom to make their own choices and decisions regarding their lives and bodies.