Which of the following statements is most correct?
A) The slope of the security market line is beta.
B) A stock with a negative beta must have a negative required rate of return.
C) If a stock's beta doubles its required rate of return must double.
D) If a stock has a beta equal to 1.0, its required rate of return will be unaffected by changes in the market risk premium.
E) None of the above statements is correct.

Question

Quizplus · Accepted Answer

None of the statements are correct. The correct statements are: A) The slope of the security market line is the market risk premium, not beta. B) A stock with a negative beta can still have a positive required rate of return if its return is uncorrelated with the market return. C) If a stock's beta doubles, its required rate of return will also double if the market risk premium remains constant. D) If a stock has a beta equal to 1.0, its required rate of return will increase or decrease proportionally with changes in the market risk premium.

Which of the Following Statements Is Most Correct