Stock A has a beta of 1.6, Stock B has a beta of 1.0, and Stock C has a beta of 0.5. Portfolio P has equal amounts invested in each of the three stocks. Each of the stocks has a standard deviation of 32%. The returns on the three stocks are independent of one another (i.e., the correlation coefficients all equal zero). Assume that there is an increase in the market risk premium, but the risk-free rate remains unchanged. Which of the following statements is correct?
◦
The required return of all stocks will remain unchanged since there was no change in their betas.
◦
The required return on the average stock will remain unchanged, but the returns of riskier stocks (such as Stock A) will increase while the returns of safer stocks (such as Stock C) will decrease.
◦
The required return on Stock A will increase by more than the increase in the market risk premium, while the required return on Stock C will increase by less than the increase in the market risk premium.
◦
The required return on the average stock will remain unchanged, but the returns of riskier stocks (such as Stock A) will decrease while the returns on safer stocks (such as Stock C) will increase.
The two bright stars are (left) Alpha Centauri and (right) Beta Centauri.
A buildup of beta amyloid plaques and tangled strands of tau protein interferes with neuronal ...
Beta-Adrenergic Antagonists
Stock Market Question
Daniel's Enterprises has a beta of 1.98 and a growth rate of 12 percent. The stock is ...
Human beta-globin–complex locus control region