Assume that 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 negative.
B. An index fund with beta = 1.0 should have a required return less than 11%.
C. If a stock's beta doubles, its required return must also double.
D. An index 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 of 11%.
Answer: E
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