Which of the Following Statements Is Correct? (Assume That the Risk-Free

question 86

Multiple Choice

Which of the following statements is correct? (Assume that the risk-free rate is a constant.)

• A)If the market risk premium increases by 1%, then the required return will increase for stocks that have a beta greater than 1.0, but it will decrease for stocks that have a beta less than 1.0.
• B)The effect of a change in the market risk premium depends on the slope of the yield curve.
• C)If the market risk premium increases by 1%, then the required return on all stocks will rise by 1%.
• D)If the market risk premium increases by 1%, then the required return will increase by 1% for a stock that has a beta of 1.0.

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Definitions:

Monopolies

Market situations in which a single supplier dominates the supply of a good or service, with no close substitutes.

Demand Curve

An illustrated chart depicting the correlation between a product's price and the amount of it consumers want to buy at that price level.

Marginal Cost

The spending necessary to produce an extra unit of a product or service.

Intellectual Property

Legal rights that result from intellectual activity in the industrial, scientific, literary, and artistic fields.