Which of the following statements is most correct and why? a. If beta doubles, t

Question

Which of the following statements is most correct and why?

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 s tocks 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 s tocks 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

Reason: Because all other answers (a),(b),(c),(d) do not hold true for all the cases. In some cases the things chage depending on the value of beta.

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