Assume That the Risk-Free Rate Remains Constant, but the Market

question 10

Multiple Choice

Assume that the risk-free rate remains constant, but the market risk premium declines. Which of the following is most likely to occur?

• A) The required return on a stock with beta = 1.0 will not change.
• B) The required return on a stock with beta > 1.0 will increase.
• C) The return on "the market" will remain constant.
• D) The return on "the market" will increase.
• E) The required return on a stock with beta < 1.0 will decline.

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