An increase in the beta of a corporation indicates ____________, and, all else being the same, results in___________.
A) an increase in risk; a higher required rate of return and hence a lower share price.
B) an increase in risk; a lower required rate of return and hence a higher share price.
C) a decrease in risk; a lower required rate of return and hence a higher share price.
D) a decrease in risk; a higher required rate of return and hence a lower share price.

Question

Quizplus · Accepted Answer

An increase in beta indicates higher systematic risk, which leads to a higher required rate of return. This higher required rate of return will result in a lower share price, assuming all else remains constant. Therefore, A is the correct answer.

An Increase in the Beta of a Corporation Indicates ____________