Which of the following statements is most correct? a. If beta doubles, the requi

Question

Which of the following statements is most correct?

a. If beta doubles, the required return doubles.

b. If a stock has a negative beta, its required return is negative.

c. Higher beta stocks have more company-specific risk, but do not necessarily have more market risk.

d. If a portfolio's beta increases from 1.2 to 1.5, its required rate of return will increase by an amount equal to its market risk premium.

e. If two stocks have the same standard deviation and the correlation coefficient between the returns of two stocks equals zero, an equally weighted portfolio of the two stocks will have a standard deviation lower than that of individual stocks.

Explanation / Answer

e. If two stocks have the same standard deviation and the correlation coefficient between the returns of two stocks equals zero, an equally weighted portfolio of the two stocks will have a standard deviation lower than that of individual stocks.

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