The Risk-Free Rate Is 6%; Stock a Has a Beta

question 127

Multiple Choice

The risk-free rate is 6%; Stock A has a beta of 1.0; Stock B has a beta of 2.0; and the market risk premium, rM - rRF, is positive. Which of the following statements is CORRECT?

• A) stock b's required rate of return is twice that of stock a.
• B) if stock a's required return is 11%, then the market risk premium is 5%.
• C) if stock b's required return is 11%, then the market risk premium is 5%.
• D) if the risk-free rate remains constant but the market risk premium increases, stock a's required return will increase by more than stock b's.
• E) if the risk-free rate increases but the market risk premium stays unchanged, stock b's required return will increase by more than stock a's.

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Definitions:

Critical Listening

The skill of analyzing and evaluating the content of a message or sound, focusing on understanding and critiquing the information.

Empathic Listening

Listening to understand the speaker’s feelings, needs, and wants so that you can appreciate his or her point of view.

Retain Information

The process of keeping or memorizing facts or details over a period of time.

Listening Difficulty

Challenges or obstacles that prevent effective understanding of spoken communication.