Assume That in Recent Years Both Expected Inflation and the Market

question 36

Multiple Choice

Assume that in recent years both expected inflation and the market risk premium (rM − rRF) have declined Assume also that all stocks have positive betas Which of the following would be most likely to have occurred as a result of these changes?

• A) The required returns on all stocks have fallen, but the fall has been greater for stocks with higher betas.
• B) The average required return on the market, rM, has remained constant, but the required returns have fallen for stocks that have betas greater than 1.0.
• C) Required returns have increased for stocks with betas greater than 1.0 but have declined for stocks with betas less than 1.0.
• D) The required returns on all stocks have fallen by the same amount.
• E) The required returns on all stocks have fallen, but the decline has been greater for stocks with lower betas.

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Definitions:

Implicit Prejudice

Implicit prejudice refers to unconscious biases or attitudes individuals hold against others, which can influence behavior and decisions without conscious awareness.

Discrimination

The unjust or prejudicial treatment of different categories of people or things, especially on the grounds of race, age, or gender.

Normative Social Influence

The compelling influence of companions or society that leads us to change our demeanor to be welcomed and liked by them.

Ingroup Bias

The tendency to favor and extend loyalty to members of one's own group over others.