Assume That the Risk-Free Rate,r_RF,increases but the Market Risk Premium

question 78

Multiple Choice

Assume that the risk-free rate,r_RF,increases but the market risk premium, (r_M - r_RF) ,declines,with the net effect being that the overall required return on the market,r_M,remains constant.Which of the following statements is CORRECT?

• A) The required return will decline for stocks that have a beta less than 1.0 but will increase for stocks that have a beta greater than 1.0.
• B) Since the overall return on the market stays constant, the required return on each individual stock will also remain constant.
• C) The required return will increase for stocks that have a beta less than 1.0 but decline for stocks that have a beta greater than 1.0.
• D) The required return of all stocks will fall by the amount of the decline in the market risk premium.
• E) The required return of all stocks will increase by the amount of the increase in the risk-free rate.

Learn how to calculate degrees of freedom in different scenarios.

Differentiate between dependent and independent samples t-test.

Comprehend how to interpret the test statistic in hypothesis testing.

Understand the implications of the obtained value and the critical value in decision-making.

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Definitions:

Departmental Overhead Rates

The method for allocating overhead costs to specific departments based on departmental activities and cost drivers.

Activity-based Costing

A costing method that identifies the activities that a firm performs and then assigns indirect costs to products based on each product's use of those activities.

Activity Cost Pools

Groupings of individual costs related to a particular activity, used in activity-based costing to allocate costs more accurately.

Direct Labor-hours

The overall hours that workers, who are a part of the manufacturing operations, put in.