Question

Which of the following statements is most correct?

	The required rate of return of a diversified portfolio with Beta of 1 is typically greater than the Market Risk Premium.
	A stock with a negrative beta must have a negative required rate of return.
	If a stock's beta doubles its required rate of return must double.
	If a stock has a beta equal to 1.0, its required rate of return will be unaffected by changes in the market risk premium.
	None of the above statements is correct.

Answer 1

The required rate of return of a diversified portfolio with Beta of 1 is typically greater than the Market Risk Premium.

Incorrect because the required rate of return of a diversified portfolio with Beta of 1 is typically lower than the market risk premium.

A stock with a negrative beta must have a negative required rate of return. Incorrect because the stock with negative beta can have a positive required return.

If a stock's beta doubles its required rate of return must double. Incorrect because if beta doubles the required rate of return can increase by less than double.

If a stock has a beta equal to 1.0, its required rate of return will be unaffected by changes in the market risk premium. Incorrect because the required rate of return changes with changes in the market risk premium.