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

question 71

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

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Definitions:

Motivation

The combination of forces that drive people to satisfy their needs.

Psychographics

The study of personality, values, opinions, attitudes, interests, and lifestyles of people, used in market research.

Demographics

Statistical data relating to the population and particular groups within it, often used for marketing, policy-making, and social research.

Self-actualization

The realization or fulfillment of one's talents and potentialities, considered as a drive or need present in everyone.