Stock a Has a Beta of 0

question 125

Multiple Choice

Stock A has a beta of 0.8 and Stock B has a beta of 1.2.50% of Portfolio P is invested in Stock A and 50% is invested in Stock B.If the market risk premium (rM - rRF) were to increase but the risk-free rate (rRF) remained constant, which of the following would occur?

• A) The required return would decrease by the same amount for both Stock A and Stock B.
• B) The required return would increase for Stock A but decrease for Stock B.
• C) The required return on Portfolio P would remain unchanged.
• D) The required return would increase for Stock B but decrease for Stock A.
• E) The required return would increase for both stocks but the increase would be greater for Stock B than for Stock A.

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Definitions:

Environment

The environment or the conditions under which a person, animal, or plant exists or functions.

Culture

The social behavior, norms, knowledge, beliefs, arts, laws, customs, capabilities, and habits of the individuals in these groups.

Genes

Units of heredity made up of DNA, responsible for governing characteristics and traits passed from parents to offspring.

Father Care

The involvement and care provided by a father to his children, which can include emotional support, physical care, and financial provision.