Assume that investors have recently become more risk averse, so the market risk premium has increased. Also, assume that the risk-free rate and expected inflation have not changed. Which of the following is most likely to occur?

A. The required rate of return for an average stock will increase by an amount equal to the increase in the market risk premium.
B. The required rate of return will decline for stocks whose betas are less than 1.0.
C. The required rate of return on the market, rM, will not change as a result of these changes.
D. The required rate of return for each individual stock in the market will increase by an amount equal to the increase in the market risk premium.
E. The required rate of return on a riskless bond will decline.


Answer: A

Business

You might also like to view...

________ is a multivariate dependence technique with more than one dependent variable

A) Two-group discriminant analysis B) Multiple regression C) Multidimensional scaling D) Multiple discriminant analysis

Business

Samuel Adams combined weaponry of sword and pen by organizing the Associated Press to do battle with King George

Indicate whether the statement is true or false

Business

Undisclosed agencies are not lawful in the United States

Indicate whether the statement is true or false

Business

In a Chapter 13 bankruptcy, creditors cannot force a debtor into bankruptcy; nor can they vote to confirm or reject a plan of reorganization

Indicate whether the statement is true or false

Business