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Relation between beta and required return

Is the best solution letter B, D or E ??

Stock C has a beta of 1.2, while Stock D has a beta of 1.6. Assume that the stock market is efficient. Which of the following statements is most correct?

a. The required rates of return of the two stocks should be the same.
b. The expected rates of return of the two stocks should be the same.
c. Each stock should have a required rate of return equal to zero.
d. The NPV of each stock should equal its expected return.
e. The NPV of each stock should equal zero.

Solution Preview

The answer is e.
Since the beta is different, the expected return will be ...

Solution Summary

Gievn mutiple choice, the solution explains why one option is the correct one.

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