The Risk-Free Rate Is 6%;Stock a Has a Beta of 1.0;Stock

question 34

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,r_M - r_RF,is positive.Which of the following statements is CORRECT?

• A) 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.
• B) Stock B's required rate of return is twice that of Stock A.
• C) If Stock A's required return is 11%,then the market risk premium is 5%.
• D) If Stock B's required return is 11%,then the market risk premium is 5%.
• E) 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.

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Definitions:

Almonds

Edible seeds from the almond tree, often consumed raw, roasted, or used as a flavoring agent in various dishes.

Crude Oil

A naturally occurring, unrefined petroleum product composed of hydrocarbon deposits and other organic materials.

Producer Surplus

is the difference between the amount producers are willing to accept for a good or service versus what they actually receive.

Consumer Surplus

The discrepancy between the sum consumers are ready and able to spend on a good or service and the sum they end up paying.