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

question 72

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.
• E) The effect of a change in the market risk premium depends on the level of the risk-free rate.

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Definitions:

Individual Bonds

Debt securities issued by entities such as corporations or governments to finance projects or operations, owned by the investors purchasing them.

Bond

A form of an interest-bearing note used by corporations to borrow on a long-term basis.

Market Rate

The present value at which a service or asset is available for purchase or sale on the open market.

Economic Conditions

The state of the economy at a given time, including factors like inflation, unemployment rates, and GDP growth.