Gretta's portfolio consists of $700,000 invested in a stock that has a beta of 1.2 and $300,000
Question:
Gretta's portfolio consists of $700,000 invested in a stock that has a beta of 1.2 and $300,000 invested in a stock that has a beta of 0.8. The risk-free rate is 6% and the market risk premium is 5%. Which of the following statements is CORRECT?
The required return on the market is 10%. | ||
The portfolio's required return is less than 11%. | ||
If the risk-free rate remains unchanged but the market risk premium increases by 2%, Gretta's portfolio's required return will increase by more than 2%. | ||
If the market risk premium remains unchanged but expected inflation increases by 2%, Gretta's portfolio's required return will increase by more than 2%. | ||
If the stock market is efficient, Gretta's portfolio's expected return should equal the expected return on the market, which is 11%. |