Company a Has a Beta of 0

question 83

Multiple Choice

Company A has a beta of 0.70,while Company B's beta is 1.00.The required return on the stock market is 9.00%,and the risk-free rate is 2.25%.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. ) Do not round your intermediate calculations.

• A) 2.03%
• B) 2.13%
• C) 1.66%
• D) 1.64%
• E) 1.52%

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Definitions:

Growth Rate

The rate at which a company's earnings, revenue, or other financial metric increases on a year-to-year basis.

Zero Growth Stock

Zero growth stock refers to shares in a company that is expected to experience neither growth nor decline in its dividends or earnings in the foreseeable future.

Required Rate

The minimum return an investor is willing to accept when investing in a project, taking into account the risk level of the investment.

Annual Dividend

The total amount of money paid by a company to its shareholders in the form of dividends over a year.