Which of the Following Statements Is CORRECT

question 109

Multiple Choice

Which of the following statements is CORRECT?

• A) If a company's beta doubles,then its required rate of return will also double.
• B) Other things held constant,if investors suddenly become convinced that there will be deflation in the economy,then the required returns on all stocks should increase.
• C) If a company's beta were cut in half,then its required rate of return would also be halved.
• D) If the risk-free rate rises by 0.5% but the market risk premium declines by that same amount,then the required rates of return on stocks with betas less than 1.0 will decline while returns on stocks with betas above 1.0 will increase.
• E) If the risk-free rate rises by 0.5% but the market risk premium declines by that same amount,then the required rate of return on an average stock will remain unchanged,but required returns on stocks with betas less than 1.0 will rise.

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Definitions:

Total Cost

The complete cost of production or operation, including both fixed and variable costs.

Total Revenue

The total amount of income generated by the sale of goods or services related to a company's primary operations.

Odd Pricing

Psychological pricing strategy in which goods are priced at, say, $9.99 rather than $10.00 in the belief that the price will seem lower than it really is.

Prestige Pricing

A pricing strategy where goods are priced higher than market averages to evoke a sense of luxury or exclusivity.