Assume That the Risk-Free Rate Remains Constant, but the Market

question 10

Multiple Choice

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 not change.
• B) The required return on a stock with beta > 1.0 will increase.
• C) The return on "the market" will remain constant.
• D) The return on "the market" will increase.
• E) The required return on a stock with beta < 1.0 will decline.

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Definitions:

Observation

The action or process of closely monitoring or watching something or someone carefully in order to gain information.

Operant Behavior

Operant behavior involves actions that are controlled by their consequences, a concept fundamental to operant conditioning theories in psychology.

Environmental Conditions

The physical and biological factors along with their chemical interactions that affect an organism or a group of organisms.

Skinner's Terminology

The set of terms and concepts developed by B.F. Skinner to describe his theories and findings in the field of behaviorism.