Assume that the risk-free rate remains constant, but the market risk premium declines. Which of the following is most likely to occur?
A. The required return on a stock with beta > 1.0 will increase.
B. The return on "the market" will remain constant.
C. The return on "the market" will increase.
D. The required return on a stock with beta < 1.0 will decline.
E. The required return on a stock with beta = 1.0 will not change.
Answer: D
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