During the Coming Year, the Market Risk Premium (RM −

question 61

Multiple Choice

During the coming year, the market risk premium (rM − rRF) , is expected to fall, while the risk-free rate, rRF, is expected to remain the same. Given this forecast, which of the following statements is CORRECT?

• A) The required return will increase for stocks with a beta less than 1.0 and will decrease for stocks with a beta greater than 1.0.
• B) The required return on all stocks will remain unchanged.
• C) The required return will fall for all stocks, but it will fall more for stocks with higher betas.
• D) The required return for all stocks will fall by the same amount.
• E) The required return will fall for all stocks, but it will fall less for stocks with higher betas.

---

Definitions:

Normal Time

The standard duration that a task or activity is expected to take under usual conditions.

Allowance Factor

A multiplier or percentage factor applied in calculations to account for expected deviations or uncertainties in estimates or operational capacities.

Predetermined Time Standards

Time values assigned to specific tasks based on analyses of their elements, used for planning and setting performance targets.