Multiple Choice
Stock A has a beta of 0.8 and Stock B has a beta of 1.2. Fifty percent of Portfolio P is invested in Stock A and 50% is invested in Stock B. If the market risk premium (rM - rRF) were to increase but the risk-free rate (rRF) remained constant, which of the following would occur?
A) The required return will increase for both stocks but the increase will be greater for Stock B than for Stock A.
B) The required return will decrease by the same amount for both Stock A and Stock B.
C) The required return will increase for Stock A but will decrease for Stock B.
D) The required return on Portfolio P will remain unchanged.
Correct Answer:
Verified
Correct Answer:
Verified
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