Which of the following statements is correct?
A) 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.
B) A stock with a negative beta must in theory have a negative required rate of return.
C) If a stock's beta doubles, its required rate of return must also double.
D) If a stock's returns are negatively correlated with returns on most other stocks, the stock's beta will be negative.

Question

Quizplus · Accepted Answer

A stock's beta measures its sensitivity to market movements. If a stock's returns are negatively correlated with the market, it will have a negative beta, indicating it moves in the opposite direction to the market.

Which of the Following Statements Is Correct