Assume That the Risk-Free Rate Remains Constant, but the Market

question 71

Multiple Choice

Assume that the risk-free rate remains constant, but the market risk premium declines.Which of the following is most likely to occur?

• A) The required return on a stock with beta > 1.0 will increase.
• B) The return on "the market" will remain constant.
• C) The return on "the market" will increase.
• D) The required return on a stock with beta < 1.0 will decline.
• E) The required return on a stock with beta = 1.0 will not change.

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Definitions:

Contingency Theory

A theoretical framework suggesting that the effectiveness of a leadership style is contingent on the situation or context.

Leadership Style

The distinctive approach or method adopted by a leader to guide, motivate, and manage followers or team members.

Situation

Refers to a set of circumstances or a scenario within which individuals find themselves, affecting their decisions and actions.

Participative Leader

A person in charge who shares decision making with group members.