Company a Has a Beta of 0

question 84

Multiple Choice

Company A has a beta of 0.70, while Company B's beta is 1.20.The required return on the stock market is 11.00%, and the risk-free rate is 4.25%.What is the difference between A's and B's required rates of return? (Hint: First find the market risk premium, then find the required returns on the stocks.)

• A) 2.75%
• B) 2.89%
• C) 3.05%
• D) 3.21%
• E) 3.38%

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Definitions:

Stockholder

An individual or entity that owns one or more shares of stock in a corporation, making them partial owners of the company.

Assets Increase

A situation where the value or volume of a company's assets rises due to acquisition or appreciation.

Operating Activities

Transactions and events that relate to the primary operations of the company, including cash received from customers and cash paid for expenses.

Resources

Assets, materials, and inputs needed by businesses to produce goods or services.