Stock a Has a Beta of 0

question 18

Multiple Choice

Stock A has a beta of 0.7, whereas Stock B has a beta of 1.3.Portfolio P has 50% invested in both A and B.Which of the following would occur if the market risk premium increased by 1% but the risk-free rate remained constant?

• A) The required return on both stocks would increase by 1%.
• B) The required return on Portfolio P would remain unchanged.
• C) The required return on Stock A would increase by more than 1%, while the return on Stock B would increase by less than 1%.
• D) The required return for Stock A would fall, but the required return for Stock B would increase.
• E) The required return on Portfolio P would increase by 1%.

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Definitions:

Post-Closing Trial Balance

A summary of all account balances in a company's general ledger after closing entries are made, serving to verify the equality of debits and credits.

Financial Statements

Documents that provide an overview of a company's financial condition in both short and long term, including the balance sheet, income statement, and cash flow statement.

Closing Entries

Journal entries made at the end of an accounting period to transfer the balances of temporary accounts to permanent ones, thereby preparing the accounts for the next period.

Depreciation Expense

is the charged amount for a particular period for the reduction in value of tangible assets due to usage and passage of time.