Question

13. The risk-free rate is 6%; Stock A has a beta of 1.0; Stock B has a beta of 2.0; and the market risk premium, rM ? rRF, is positive. Which of the following statements is CORRECT?A If the risk-free rate increases but themarket risk premium stays unchanged, Stock B's required return will increase by more than Stock A's. B Stock B's required rate of return is twicethat of Stock A. C If Stock A's required return is 11%, then the market risk premium is 5%. D If Stock B's required return is 11%, thenthe market risk premium is 5%. E If the risk-free rate remains constant but the market risk premium increases, Stock A's required return will increase by more than Stock B's.