Which of the Following Statements Is CORRECT

question 109

Multiple Choice

Which of the following statements is CORRECT?

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

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Definitions:

Elasticity of Demand

An indicator of the responsiveness of the quantity of a product demanded to its price alterations.

Total Revenue

The total income a firm receives from the sale of its products, calculated as the price per unit times the number of units sold.

Inelastic

A demand is considered inelastic when it does not significantly change with the price of a good or service, indicating that consumers are relatively insensitive to price changes.

Elastic

Describing a situation where the demand or supply for a product or service is sensitive to changes in price or other factors.