Currently the risk free rate is 1% and the market premium is 3%. Given this info

Question

Currently the risk free rate is 1% and the market premium is 3%. Given this information, which of the following statements is correct?
A) An index fund with beta = 1.0 should have a required return of 4% B) An index fund with beta = 1.0 should have a required return less than 4% C) An index fund with beta = 1.0 should have a required return greater than 4% D) If stock doubles, it's required return must also double Currently the risk free rate is 1% and the market premium is 3%. Given this information, which of the following statements is correct?
A) An index fund with beta = 1.0 should have a required return of 4% B) An index fund with beta = 1.0 should have a required return less than 4% C) An index fund with beta = 1.0 should have a required return greater than 4% D) If stock doubles, it's required return must also double
A) An index fund with beta = 1.0 should have a required return of 4% B) An index fund with beta = 1.0 should have a required return less than 4% C) An index fund with beta = 1.0 should have a required return greater than 4% D) If stock doubles, it's required return must also double

Explanation / Answer

ANSWER = A) An index fund with beta = 1.0 should have a required return of 4%

Required rate of return = risk free return + beta * market risk premium

= 1% + 1 * 3% = 4%

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