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27 July, 21:53

Stock A has a beta of 0.7, whereas Stock B has a beta of 1.3. Portfolio P has 50% invested in both A and B. Which of the following would occur if the market risk premium increased by 1% but the risk-free rate remained constant

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  1. 27 July, 23:57
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    The question is incomplete;

    a. The required return on Portfolio P would increase by 1%.

    b. The required return on both stocks would increase by 1%.

    c. The required return on Portfolio P would remain unchanged.

    d. The required return on Stock A would increase by more than 1%, while the return on Stock B would increase by less than 1%.

    e. The required return for Stock A would fall, but the required return for Stock B would increase.

    The answer is a. The required return on Portfolio P would increase by 1%.
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