Assume that the risk-free rate is 5%.Which statement about a stock's beta is correct?
A)If a stock has a negative beta, its required return under the CAPM would be less than 5%.
B)If a stock's beta doubled, its required return under the CAPM would also double.
C)If a stock's beta were less than 1.0, its required return under the CAPM would less than 5%.
D)If a stock's beta were 1.0, its required return under the CAPM would be 5%.

Question

Quizplus · Accepted Answer

A negative beta indicates that the stock moves inversely to the market. Under the Capital Asset Pricing Model (CAPM), a negative beta would result in a required return less than the risk-free rate, as it implies the stock provides a hedge against market movements.

Assume That the Risk-Free Rate Is 5