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:

Accounts Receivable Turnover

A financial ratio that measures how efficiently a company collects cash from its credit sales by dividing net credit sales by the average accounts receivable.

Net Sales

The net income generated from sales, after subtracting the costs related to returns, compensations for damaged or lost items, and price reductions.

Average Accounts Receivable

A measure of the average amount of money owed to a company by its customers over a period.

Maturity Date

The specified date on a financial instrument at which the principal (or nominal) amount is due to be paid back in full.