4. Stock As beta is 1.5 and Stock Bs beta is 0.5. Which of the following statements must be true, assuming the CAPM is correct.

A. Stock A is riskier to hold than Stock B.

B. Stock A pays a higher risk premium than stock B.

C. Stock B would be a better choice to add to a portfolio than A.

D. The systematic risk of stock B is higher than stock A.

5. During the coming year, the market risk premium (r_M r_RF), is expected to rise, while the risk-free rate, r_RF, is expected to remain the same. The systematic risk of all stocks remains unchanged. Given this forecast, which of the following statements is CORRECT?

A. The required return will decrease for stocks with a beta less than 1.0 and will increase for stocks with a beta greater than 1.0.

B. The required return on all stocks will remain unchanged.

C. The required return will increase for all stocks, but it will increase more for stocks with higher betas.

D. The required return will increase for all stocks, but it will increase less for stocks with higher betas.