Stock A has a beta (β) equal to 2.1 and Stock B has a beta equal to 0.7. 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 A, rA, should be 2.1 times the required rate of return for Stock B, rB.
B) The risk premium associated with Stock A, RPA, should be 2.1 times the risk premium associated with Stock B, RPB.
C) The required rate of return for Stock A, rA, should be three times the required rate of return for Stock B, rB.
D) The risk premium associated with Stock A, RPA, should be three times the risk premium associated with Stock B, RPB.
E) The required rate of return for Stock A, rA, should be three times the risk premium associated with Stock A, RPA
Correct Answer:
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