6. Assume that the risk-free rate is 5%. Which of the following statements is CO

Question

6. Assume that the risk-free rate is 5%. Which of the following statements is CORRECT? A If a stock has a negative beta, its required return under the CAPM would be less than 5%. B If a stock's beta doubled, its required return under the CAPM would also double. C If a stock's beta doubled, its required return under the CAPM would more than double. D If a stock's beta were 1.0, its required return under the CAPM would be 5%. E If a stock's beta were less than 1.0, its required return under the CAPM would be less than 5%.

Explanation / Answer

Assume that the risk-free rate is 5%. Which of the following statements is CORRECT?

A If a stock has a negative beta, its required return under the CAPM would be less than 5%.-correct answer

B If a stock's beta doubled, its required return under the CAPM would also double. C If a stock's beta doubled, its required return under the CAPM would more than double. D If a stock's beta were 1.0, its required return under the CAPM would be 5%. E If a stock's beta were less than 1.0, its required return under the CAPM would be less than 5%.

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