Suppose That During the Coming Year, the Risk Free Rate

question 78

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:

Psychoanalytic

Relating to a theory of psychology which emphasizes unconscious psychological processes and is credited to Freud.

Positive Transference

The phenomenon in psychotherapy where a patient projects positive feelings for someone from their past onto the therapist.

Free Association

A psychoanalytic technique where the patient speaks freely to uncover repressed thoughts and feelings, facilitating the therapeutic process.

Insight Therapist

A mental health professional who focuses on guiding clients to understand the motivations and dynamics of their thoughts, emotions, and behaviors.