Question: Consider the data for Auroras Educational Services, Inc. Currently the firms Beta is 2.00 and the standard deviation for the firms monthly returns is 12.5%.

Consider the data for Auroras Educational Services, Inc. Currently the firms Beta is 2.00 and the standard deviation for the firms monthly returns is 12.5%. The Expected Return on the market is 10% and Treasury Bill rate is 4.00%.

As part of an analysis of the firm, an analyst has computed the beta and the standard deviation of returns for another competing firm, GreatWaters Educational Services, Inc. The beta and standard deviation of returns for GreatWaters are 1.5 and 10.0% respectively.

A rational investor should demand higher return for Aurora because it has higher standard deviation of returns

A rational investor should demand higher return for Aurora because it has higher Beta

A rational investor should demand higher return for GreatWaters, Inc. because it has lower standard deviation

A rational investor should demand higher return for GreatWaters because it has lower beta.

None of the answers provided are correct.

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