As the marketplace is in equilibriumrequired returns stocks

Reference no: EM1329976

Stock beta, required return on stock

1) Stock a has a beta of 1.5 and Stock b has a beta of 0.5. The market is in equilibrium, with required returns equaling expected returns. Which of the following statements is CORRECT?

a. Since the market is in equilibrium, the required returns of the two stocks should be the same.
b. If expected inflation remains constant but the market risk premium (rM - rRF) declines, the required return on Stock HB will decline but the required return of Stock LB will increase.
c. If expected inflation remains constant but the market risk premium (rM - rRF) declines, the required return of Stock LB will decline but the required return of Stock HB will increase.
d. If both expected inflation and the market risk premium (rM - rRF) increase, the required returns of both stocks will increase by the same amount.
e. If both expected inflation and the market risk premium (rM - rRF) increase, the required return on Stock HB will increase by more than that on Stock LB.

2) The risk-free rate is 5%. Stock A has a beta = 1.0 and Stock B has a beta = 1.4. Stock A has a required return of 11%. What is Stock B's required return?

a. 12.4%
b. 13.4%
c. 14.4%
d. 15.4%
e. 16.4%

Reference no: EM1329976

Questions Cloud

Write down a public static method named chunk25 : Write down a public static method named chunk25 that takes a double and returns an integer that represents the number of chunks of 25 in that number. A chunk of 25 is 25, or any part thereof

Explain a solid esolution make up for a flawed business plan : Explain a solid E-solution make up for a flawed business plan and why do you believe so many dot-coms went out of business

In the us the long-run inflation rate can be expressed : In the US the long-run inflation rate can be expressed simply as the growth rate.

Make a public static method named comparescores : Write down a public static method named compareScores that takes two doubles as its arguments and returns the integer value of -1 if the first argument is less than the second, 0 if the first argument is the same as the second, and +1 if the first..

As the marketplace is in equilibriumrequired returns stocks : As the marketplace is in equilibrium, the required returns of the two stocks should be the same.

Program that computes the total cost of four years : Write down another Java program that computes the total cost of four years worth of tuition starting ten years from now.

Explain xml technology : Explain XML Technology and Find two examples of XML technology being used by corporations today

Illustrate what was the economys biggest risk : Illustrate what was the economy's biggest risk--inflation or unemployment.

Note down an applet that simulates a soft drink machine : Write down an applet that simulates a soft drink machine. The simulated machine dispenses the following soft drinks: cola, lemon-lime soda, grape soda, root beer, and bottled water. These drinks cost $0.75 each to purchase.

User Account

All Pages