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:

Axon

A long, slender projection of a nerve cell, or neuron, that typically conducts electrical impulses away from the neuron's cell body.

Nucleus

A membrane-bound organelle found in eukaryotic cells that contains most of the cell's genetic material.

Cardiac Muscle

Specialized, involuntary muscle tissue found only in the heart, responsible for pumping blood throughout the body.

Smooth Muscle

A type of muscle found in the walls of internal organs, such as the stomach and intestines, that contracts involuntarily.