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

question 125

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 a positive beta < 1.0 will decline.

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Definitions:

Ethics

The moral principles that govern a person's behavior or the conducting of an activity, focusing on what is good or bad and right or wrong.

Morality

Principles concerning the distinction between right and wrong or good and bad behavior.

Unethically

Engaging in behavior that is morally wrong, against ethical standards, or principles.

High Self-Esteem

A favorable and confident evaluation of oneself, often reflecting a belief in one's abilities and worth.