Currently, the risk free rate is 6% and the market risk premium is 5%. given this information, which of the following statements is correct? a. if a stock has a negative beta, its required return must also be negativeb. if a stock's beta doubles, its required return must also double. c.an index fund with beta = 1.0 should have a required return of 11%d. an idex fund with beta = 1.0 should have a required return greater than 11%e. an index fund with beta = 1.0 should have a required return less than 11%

c.An index fund with beta = 1.0 should have a required return of 11%

CORRECT We calcualte and obtain the proposed answer.

Ke = 0.11

Explanation:

we analize considering the CAMP formula:

risk free

market rate

premium market: market rate - risk free

beta(non diversifiable risk)

a. If a stock has a negative beta, its required return must also be negative

b. If a stock's beta doubles, its required return must also double.

FALSE

It will increase by beta times risk premium

d. An idex fund with beta = 1.0 should have a required return greater than 11%

FALSE we calcualte for beta of 1 and obtain 11%

e. An index fund with beta = 1.0 should have a required return less than 11%

FALSE we calcualte for beta of 1 and obtain 11%

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