Question
If the current risk-free rate is 6%; Stock A has a beta of 1.0; Stock B has a beta of 2.0; and the market risk
If the current risk-free rate is 6%; Stock A has a beta of 1.0; Stock B has a beta of 2.0; and the market risk premium, r M r RF, is positive. Which of the following statements is CORRECT?
a. | If the risk-free rate increases but the market risk premium stays unchanged, Stock B's required return will increase by more than Stock A's. | |
b. | If Stock B's required return is 11%, then the market risk premium is 2.5%. | |
c. | If Stock A's required return is 11%, then the market risk premium is 2.5%. | |
d. | If the risk-free rate remains constant but the market risk premium increases, Stock A's required return will increase by more than Stock B's. | |
e. | Stock B's required rate of return is twice that of Stock A. |
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