Question

The required return will increase for stocks with a beta less than 1.0 and will decrease for stocks with a beta greater than 1.0.

Answer 1

Answer:

During the coming year, the market risk premium (rM - rRF), is expected to fall, while the risk-free rate, rRF, is expected to remain the same. Given the forecast, which of the following statements is CORRECT?

a. The required return will increase for stocks with a beta less than 1.0 and will decrease for stocks with a beta greater than 1.0

b. The required return on all stocks will remain unchanged

c. The required return will fall for all stocks, but it will fall more for stocks with higher betas

d. The required return for all stocks will fall by the same amount

e. The required return will fall for all stocks, but it will fall less for stocks with higher betas

Explanation:

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Answer 2

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QUESTION ✎ What Beta Means When Considering a Stock's Risk

✠ How should investors assess risk in the stocks that they buy or sell? While the concept of risk is hard to factor in stock analysis and valuation, one of the most popular indicators is a statistical measure called beta. Analysts use it often when they want to determine a stock's risk profile. However, while beta does say something about price risk, it has its limits for investors looking to determine fundamental risk factors.

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