Stock a Has a Beta = 0

question 18

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 marginal investor becomes more risk averse,the required return on Stock A will increase by more than the required return on Stock B.
• E) 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:

Preventing Deleterious Changes

Taking actions to stop harmful or damaging modifications from occurring.

McGrath

Refers potentially to Joseph Edward McGrath, a psychologist known for his research on small groups and team dynamics.

Executive Action/Internal

Executive action refers to decisions or measures taken by an organization's leadership, often involving strategic, policy, or managerial changes within an internal framework.

Interdependent

Describes a relationship or condition where entities or individuals rely on each other, highlighting mutual dependency.