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:

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