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Stock A has a beta of 0.7, whereas Stock B has a beta of 1.3. Portfolio P has 50% invested in both A and B. Which of the following would occur if the market risk premium increased by 1% but the risk-free rate remained constant?   a. The required return on Portfolio P would increase by 1%.     b. The required return on Stock A would increase by more than 1%, while the return on Stock B would increase by less than 1%.     c. The required return on both stocks would increase by 1%.     d. The required return on Portfolio P would remain unchanged.     e. The required return for Stock A would fall, but the required return for Stock B would increase.

Stock A has a beta of 0.7, whereas Stock B has a beta of 1.3. Portfolio P has 50% invested in both A and B. Which of the following would occur if the market risk premium increased by 1% but the risk-free rate remained constant?   a. The required return on Portfolio P would increase by 1%.     b. The required return on Stock A would increase by more than 1%, while the return on Stock B would increase by less than 1%.     c. The required return on both stocks would increase by 1%.     d. The required return on Portfolio P would remain unchanged.     e. The required return for Stock A would fall, but the required return for Stock B would increase.

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Stock A has a beta of 0.7, whereas Stock B has a beta of 1.3. Portfolio P has 50% invested in both A and B. Which of the following would occur if the market risk premium increased by 1% but the risk-free rate remained constant?
  a. The required return on Portfolio P would increase by 1%.  
  b. The required return on Stock A would increase by more than 1%, while the return on Stock B would increase by less than 1%.  
  c. The required return on both stocks would increase by 1%.  
  d. The required return on Portfolio P would remain unchanged.  
  e. The required return for Stock A would fall, but the required return for Stock B would increase.
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