Suppose That During the Coming Year,the Risk Free Rate,r_RF,is Expected

question 36

Multiple Choice

Suppose that during the coming year,the risk free rate,r_RF,is expected to remain the same,while the market risk premium (r_M-r_RF) ,is expected to fall.Given this forecast,which of the following statements is CORRECT?

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

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Definitions:

Coin Flipped

A metaphorical expression used to describe an event that has an equal probability of occurring in one of two ways.

Probability

A measure of the likelihood that an event will occur.

Heads

In the context of coin tosses, it refers to one of the two possible outcomes where the side of the coin showing the head is facing up.

Method Of Equal Alternatives

A problem-solving technique that involves systematically comparing different solutions or options.