Stock A has a beta of 1.2 and a standard deviation of returns of 14%. Stock B ha

Question

Stock A has a beta of 1.2 and a standard deviation of returns of 14%. Stock B has a beta of 1.8 and a standard deviation of returns of 18%. If the risk free rate                 of return increases and the market risk premium remains constant, 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.

TIA

Explanation / Answer

Stock A has a beta of 1.2 and a standard deviation of returns of 14%. Stock B has a beta of 1.8 and a standard deviation of returns of 18%. If the risk free rate of return increases and the market risk premium remains constant, then _________

b. The required returns on stocks A and B will both increase by the same amount.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.