A(n) ________ in the beta coefficient normally causes ________ in the required return and therefore ________ in the price of the stock, everything else remaining the same.
A) increase; an increase; an increase
B) increase; a decrease; an increase
C) increase; an increase; a decrease
D) decrease; a decrease; a decrease

Question

Quizplus · Accepted Answer

An increase in the beta coefficient normally causes an increase in the required return, and therefore a decrease in the price of the stock, everything else remaining the same. This is because beta measures the systematic risk of the stock, and investors require a higher return to compensate for this additional risk. As the required return increases, the present value of the future cash flows decreases, leading to a lower stock price.

A(n) ________ in the Beta Coefficient Normally Causes ________ in the Required

A(n) in the Beta Coefficient Normally Causes in the Required