An increase in the beta of a corporation indicates ________, and, all else being the same, results in ________.
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 higher systematic or market risk associated with the stock, leading to an increase in the required rate of return by investors. The increase in required rate of return results in a lower share price to compensate for the higher risk. Option B correctly captures these effects.

An Increase in the Beta of a Corporation Indicates ________