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:

Needles

Thin, pointed metal objects used for sewing, knitting, or as part of medical instruments for injecting substances into the body.

Physical Plant

The facilities, buildings, and equipment owned by an organization that are used for its operations.

Systems and Procedures

Established methods and organized processes created to conduct activities and tasks in a consistent and orderly manner.

Technology

The use of scientific understanding for real-world applications, particularly in the industrial sector.