Which of the Following Statements Is CORRECT

question 93

Multiple Choice

Which of the following statements is CORRECT?

• A) 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.
• B) If a company's beta were cut in half, then its required rate of return would also be halved.
• C) 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.
• D) 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.
• E) If a company's beta doubles, then its required rate of return will also double.

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Definitions:

Financial Strength

A measure of a company or individual's ability to manage their debts and meet financial obligations.

Canada

A country in North America known for its vast landscapes, multicultural heritage, and strong economy.

Underpricing

Occurs when the initial offering price of a stock is set below its market value, often leading to a price surge once it begins trading publicly.