Which of the Following Statements Is CORRECT? (Assume That the Risk-Free

question 72

Multiple Choice

Which of the following statements is CORRECT? (Assume that the risk-free rate is a constant. )

• A) If the market risk premium increases by 1%,then the required return will increase for stocks that have a beta greater than 1.0,but it will decrease for stocks that have a beta less than 1.0.
• B) The effect of a change in the market risk premium depends on the slope of the yield curve.
• C) If the market risk premium increases by 1%,then the required return on all stocks will rise by 1%.
• D) If the market risk premium increases by 1%,then the required return will increase by 1% for a stock that has a beta of 1.0.
• E) The effect of a change in the market risk premium depends on the level of the risk-free rate.

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Definitions:

Utility Function

A mathematical representation of a consumer's preference ranking over a set of goods or services, indicating satisfaction levels.

Units Of X

A generic term for measuring quantities of a variable or unspecified item, labeled as 'X'.

Exchanges Of X For Y

Transactions or trades where one good, service, or asset (X) is traded for another (Y).

Utility Function

An economic term describing how consumers rank different bundles of goods or levels of happiness.