During the Coming Year, the Market Risk Premium (RM −

question 61

Multiple Choice

During the coming 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 on all stocks will remain unchanged.
• C) The required return will fall for all stocks, but it will fall more for stocks with higher betas.
• D) The required return for all stocks will fall by the same amount.
• E) The required return will fall for all stocks, but it will fall less for stocks with higher betas.

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