Stock A has a beta of 1.2 and a standard deviation of returns of 14%.

Stock A has a beta of 1.2 and a standard deviation of returns of 14%. Stock B has a beta of 1.8 and a
standard deviation of returns of 18%. If the risk-free rate of return increases and the market risk
premium remains constant, then

A) the required returns on stocks A and B will both increase by the same amount.
B) the required return on stock B will increase more than the required return on stock A.
C) the required return on stock A will increase more than the required return on stock B.
D) the required returns on stocks A and B will not change.

ANSWER

A