Stock A has a beta of 1.2 and a standard deviation of returns of 18%.Stock B has a beta of 1.8 and a standard deviation of returns of 18%.If the market risk premium increases,then
A) the required return on stock B will increase more than the required return on stock A.
B) the required returns on stocks A and B will both increase by the same amount.
C) the required returns on stocks A and B will remain the same.
D) the required return on stock A will increase more than the required return on stock B.

Question

Quizplus · Accepted Answer

The required return on a stock is influenced by its beta, which measures its sensitivity to market movements. A higher beta indicates a higher sensitivity to market changes. Since Stock B has a higher beta (1.8) compared to Stock A (1.2), an increase in the market risk premium will result in a larger increase in the required return for Stock B than for Stock A.

Stock a Has a Beta of 1