Stock Q has a beta (β) equal to 1.6 and Stock P has a beta equal to 0.8.Based on this information, according to the capital asset pricing model (CAPM), which of the following statements is correct?
A)The required rate of return for Stock Q, rQ, should be 1.6 times greater than the required rate of return for Stock P, rP.
B)The risk premium associated with Stock Q, RPQ, should be 1.6 times greater than the risk premium associated with Stock P, RPP.
C)The required rate of return for Stock Q, rQ, should be two times greater than the required rate of return for Stock P, rP.
D)The risk premium associated with Stock Q, RPQ, should be two times greater than the risk premium associated with Stock P, RPP.
E)None of the above is a correct answer.

Question

Quizplus · Accepted Answer

The Answer of Stock Q has a beta (β) equal to 1.6 and Stock P has a beta equal to 0.8.Based on this information, according to the capital asset pricing model (CAPM), which of the following statements is correct?
A)The required rate of return for Stock Q, rQ, should be 1.6 times greater than the required rate of return for Stock P, rP.
B)The risk premium associated with Stock Q, RPQ, should be 1.6 times greater than the risk premium associated with Stock P, RPP.
C)The required rate of return for Stock Q, rQ, should be two times greater than the required rate of return for Stock P, rP.
D)The risk premium associated with Stock Q, RPQ, should be two times greater than the risk premium associated with Stock P, RPP.
E)None of the above is a correct answer.

Stock Q Has a Beta (β) Equal to 1