Assume that the risk-free rate is 5%. Which of the following statements is correct?
A) If a stock has a negative beta, its required return under the CAPM would be less than 5%.
B) If a stock's beta doubled, its required return under the CAPM would also double.
C) If a stock's beta were less than 1.0, its required return under the CAPM would less than 5%.
D) If a stock's beta were 1.0, its required return under the CAPM would be 5%.

Question

Quizplus · Accepted Answer

A stock with a negative beta would have a required return less than the risk-free rate under the CAPM, as it moves inversely to the market.

Assume That the Risk-Free Rate Is 5