1. Stock A has a beta of 1.2 and a standard deviation of returns of 18%. Stock B

Question

1. Stock A has a beta of 1.2 and a standard deviation of returns of 18%. Stock B has a beta of 1.8 and a standard deviation of returns of 18%. If the market risk premium increases, then ________
a. The required rate of return on Stock B will increase more than the required rate of return on stock A.
b. The required returns on stocks A and B will both increase by the same amount.
c. The required returns on stocks A and B will remain the same
d. The required return on stock A will increase more than the required return on Stock B.

Explanation / Answer

a. The required rate of return on Stock B will increase more than the required rate of return on stock A.

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