Stock X has a beta of 0.8 and Stock Y has a beta of 1.2. 50% of
Question:
Stock X has a beta of 0.8 and Stock Y has a beta of 1.2. 50% of Portfolio P is invested in Stock A and 50% is invested in Stock B. If the market risk premium (rM−rRFrM−rRF) were to increase but the risk-free rate (rRFrRF) remained constant, which of the following would occur?
a) The required return will decrease by the same amount for both Stock A and Stock B. or
b) The required return will increase for both stocks but the increase will be greater for Stock B than for Stock A. or
c) The required return will increase for Stock A but will decrease for Stock B. or
d) The required return will increase for Stock B but will decrease for Stock A or
e) The required return on Portfolio P will remain unchanged
Fundamentals of Investments, Valuation and Management
ISBN: 978-1259720697
8th edition
Authors: Bradford Jordan, Thomas Miller, Steve Dolvin