Assume that the risk-free rate is 6% and the market risk premium is 5%.Given this information,which of the following statements is CORRECT?
A) An index fund with beta = 1.0 should have a required return of 11%.
B) If a stock has a negative beta,its required return must also be negative.
C) An index fund with beta = 1.0 should have a required return less than 11%.
D) If a stock's beta doubles,its required return must also double.
E) An index fund with beta = 1.0 should have a required return greater than 11%.

Question

Quizplus · Accepted Answer

Using the Capital Asset Pricing Model (CAPM), the required return is calculated as the risk-free rate plus the product of the beta and the market risk premium. For an index fund with a beta of 1.0, the required return would be 6% (risk-free rate) + 1.0 * 5% (market risk premium) = 11%.

Assume That the Risk-Free Rate Is 6% and the Market