Stock a Has a Beta of 1

question 106

Multiple Choice

Stock A has a beta of 1.2 and a standard deviation of returns of 14%.Stock B has a beta of 1.8 and a standard deviation of returns of 18%.If the risk-free rate of return increases and the market risk premium remains constant,then

• A) the required return on stock B will increase more than the required return on stock A.
• B) the required returns on stocks A and B will both increase by the same amount.
• C) the required returns on stocks A and B will not change.
• D) the required return on stock A will increase more than the required return on stock B.

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Definitions:

Owner's Equity

The total value that would accrue to a business's owners after all liabilities are subtracted from all assets; also known as shareholder's equity or net worth.

Liabilities

Economic debts or obligations a company is responsible for, which are to be paid off over time through the exchange of economic advantages.

Owner's Withdrawal

Amounts of cash or other assets that the owner takes from the company for personal use.

Cash Account

An account that records all transactions involving cash inflows and outflows within a company.