An increase in the beta of a corporation, all else being the same, indicates ________.
A) a decrease in risk, a higher required rate of return, and hence a lower share price
B) an increase in risk, a higher required rate of return, and hence a lower share price
C) a decrease in risk, a lower required rate of return, and hence a higher share price
D) an increase in risk, a lower required rate of return, and hence a higher share price

Question

Quizplus · Accepted Answer

An increase in beta indicates increased risk, meaning that investors will require a higher rate of return to compensate for that risk. This in turn leads to a lower share price.

An Increase in the Beta of a Corporation, All Else