Stock a Has a Beta Coefficient (β) Equal to 2

Multiple Choice

Stock A has a beta coefficient (β) equal to 2.1, and Stock B has a beta coefficient (β) equal to 0.7. According to the capital asset pricing model (CAPM) , which of the following statements is correct?

A) The required rate of return for Stock A, rA, should be 2.1 times the required rate of return for Stock B, rB.
B) The risk premium associated with Stock A, RPA, should be 2.1 times the risk premium associated with Stock B, RPB.
C) The required rate of return for Stock A, rA, should be three times the required rate of return for Stock B, rB.
D) The risk premium associated with Stock A, RPA, should be three times the risk premium associated with Stock B, RPB.
E) The required rate of return for Stock A, rA, should be three times the risk premium associated with Stock A, RPA.