Stock A has a beta = 0.8, while Stock B has a beta = 1.6. Which of the following statements is most correct?
A) Stock B's required return is double that of Stock A's.
B) An equally weighted portfolio of Stock A and Stock B will have a beta less than 1.2.
C) If market participants become more risk averse, the required return on Stock B will increase more than the required return for Stock A.
D) All of the answers above are correct.
E) Answers a and c are correct.

Question

Quizplus · Accepted Answer

If market participants become more risk averse, the required return on Stock B will increase more than the required return for Stock A because Stock B has a higher beta, indicating higher sensitivity to market changes.

Stock a Has a Beta = 0