Assume That the Risk-Free Rate, RRF, Increases but the Market

question 17

Multiple Choice

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.

Comprehending the responsibilities and rights of corporate directors and officers.

Understanding the process and legal requirements for incorporating a business, including name selection and the significance of articles of incorporation.

Grasping the classification and characteristics of private, publicly held, and closely held corporations.

Realizing the role and tasks of paralegals in supporting corporate entities or professionals through various legal and administrative services.

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Definitions:

Idle Capacity

The available production capacity that is not being used, often indicating inefficiency or unmet demand.

Transfer Price

The price at which goods or services are transferred between departments or divisions within the same company, often used for budgeting and accounting purposes.

Motor Division

A business unit within a company that focuses on the production, development, and sales of motor vehicles or engines.

Transfer Price

The price at which goods or services are transferred between departments or divisions within the same company.