If the Price of Money (E

question 119

True/False

If the price of money (e.g., interest rates and equity capital costs) increases due to an increase in anticipated inflation, the risk-free rate will also increase. If there is no change in investors' risk aversion, then the market risk premium (rM - rRF) will remain constant. Also, if there is no change in stocks' betas, then the required rate of return on each stock as measured by the CAPM will increase by the same amount as the increase in expected inflation.

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Definitions:

Executive Branch

The branch of federal and state government that is broadly responsible for implementing, supporting, and enforcing the laws made by the legislative branch and interpreted by the judicial branch.

Judicial Branch

One of the three branches of the U.S. government, responsible for interpreting the laws and the Constitution, and comprised of the Supreme Court and lower federal courts.

Presidential Election of 1876

A highly contested election where Rutherford B. Hayes was declared the winner over Samuel J. Tilden after a compromise that effectively ended Reconstruction by removing federal troops from the South.

Reconstruction

The period following the Civil War in the United States, focused on rebuilding the country and integrating formerly enslaved people into society.