A Stock You Are Holding Has a Beta of 2

question 25

Multiple Choice

A stock you are holding has a beta of 2.0 and the stock is currently in equilibrium.The required rate of return on the stock is 15% versus a required return on an average stock of 10%.Now the required return on an average stock increases by 30.0% (not percentage points) .The risk-free rate is unchanged.By what percentage (not percentage points) would the required return on your stock increase as a result of this event?

• A) 36.10%
• B) 38.00%
• C) 40.00%
• D) 42.00%
• E) 44.10%

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Definitions:

Service Revenue

Income earned from the provision of services to customers or clients.

Deferred Tax Asset

An accounting term representing taxes paid or carried forward but not yet recognized in the income statement.

Income Tax Expense

represents the cost to a company of the taxes it must pay on its income, reflecting both current and deferred tax charges.

Profit and Loss Summary

A financial statement that summarizes the revenues, costs, and expenses incurred during a specific period, typically a fiscal quarter or year.