During the Next Year, the Market Risk Premium, (RM -

question 65

Multiple Choice

During the next year, the market risk premium, (rM - rRF) , is expected to fall, while the risk-free rate, rRF, is expected to remain the same. Given this forecast, which of the following statements is correct?

• A) The required return will increase for stocks with a beta less than 1.0 and will decrease for stocks with a beta greater than 1.0.
• B) The required return will fall for all stocks, but it will fall MORE for stocks with higher betas.
• C) The required return for all stocks will fall by the same amount.
• D) The required return will fall for all stocks, but it will fall LESS for stocks with higher betas.

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