Assume that the risk-free rate, rRF, increases but the market risk premium, (rM - rRF), declines with the net effect being that the overall required return on the market, rM, remains constant. Which of the following statements is CORRECT?
A. The required return of all stocks will increase by the amount of the increase in the risk-free rate.
B. The required return will decline for stocks that have a beta less than 1.0 but will increase for stocks that have a beta greater than 1.0.
C. Since the overall return on the market stays constant, the required return on each individual stock will also remain constant.
D. The required return will increase for stocks that have a beta less than 1.0 but decline for stocks that have a beta greater than 1.0.
E. The required return of all stocks will fall by the amount of the decline in the market risk premium.
Answer: D
You might also like to view...
What are the three primary functions performed by the transaction processing system?
Which of the following is NOT an issue that would be addressed in a management decision problem?
A) Should the advertising campaign be changed? B) Should the price of the product be changed? C) Determine the impact on sales and profits of various levels of price changes. D) What can a company do to expand its share of its product category? E) B and C
Silverlight Inc., a cell phone store, agrees to sell cell phones and related accessories manufactured only by Moore Corp. This is an example of a(n) ________.
A. requirements contract B. adhesion contract C. tie-in contract D. exclusive dealing contract
Buffalo Company reported a December 31 ending inventory balance of $412,000. The following additional information is also available: The ending inventory balance of $412,000 did not include goods costing $48,000 that were purchased by Buffalo on December 28 and shipped FOB destination on that date. Buffalo did not receive the goods until January 2 of the following year. The ending inventory balance of $412,000 included damaged goods at their original cost of $38,000. The net realizable value of the damaged goods was $10,000. Based on this information, the correct balance for ending inventory on December 31 is:
A. $422,000 B. $438,000 C. $374,000 D. $460,000 E. $384,000