IBM has a beta of 1.0 and Apple Computer has a beta of 3.0. Which of the following statements must be correct?
A) The market risk premium for Apple must be larger than the market risk premium of IBM.
B) If investors become more risk averse, the expected return of Apple will increase more than the expected return on IBM.
C) Apple's expected rate of return must be three times as large as IBM's.
D) none of these choices are correct.

Question

Quizplus · Accepted Answer

A higher beta indicates that Apple's stock is more sensitive to market changes, so if investors become more risk averse, the expected return for Apple will increase more than for IBM.

IBM Has a Beta of 1