Stock a Has a Beta = 0

question 18

Multiple Choice

Stock A has a beta = 0.8,while Stock B has a beta = 1.6.Which of the following statements is CORRECT?

• A) Stock B's required return is double that of Stock A's.
• B) If the marginal investor becomes more risk averse,the required return on Stock B will increase by more than the required return on Stock A.
• C) An equally weighted portfolio of Stocks A and B will have a beta lower than 1.2.
• D) If the marginal investor becomes more risk averse,the required return on Stock A will increase by more than the required return on Stock B.
• E) If the risk-free rate increases but the market risk premium remains constant,the required return on Stock A will increase by more than that on Stock B.

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Definitions:

Primary Circular Reaction

An early developmental stage where infants repeat an action that they accidentally discovered, focusing on their own body.

Tertiary Circular Reaction

A stage in Piaget's theory of cognitive development during which toddlers experiment with new behaviors to see the outcomes, typically observed around 12 to 18 months of age.

Invention

The creation of a new device, method, or process, developed from study and experimentation.

Scheme Assimilation

The cognitive process by which new information is absorbed into existing mental frameworks or schemas.