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Question
Stock A has a beta = 0.8, while Stock B has a beta = 1.6. Which of the following statements is CORRECT?a. 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.
b. An equally weighted portfolio of Stocks A and B will have a beta lower than 1.2.
c. 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.
d. 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.
e. Stock B's required return is double that of Stock A's.
Answer
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