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:

Inventory Turnover

A financial ratio that measures how frequently a company sells and replaces its inventory over a specific period.

Current Ratio

A metric assessing a business's ability to handle its due within one-year obligations, obtained by the ratio of current assets to current liabilities.

Performance Comparison

The process of comparing the actual performance of an individual, group, or process against set standards or expectations.

Accounting Statements

Financial documents that provide an overview of a company's financial condition, including income statement, balance sheet, and cash flow statement.