Which of the Following Statements Is CORRECT? (Assume That the Risk-Free

question 72

Multiple Choice

Which of the following statements is CORRECT? (Assume that the risk-free rate is a constant. )

• A) If the market risk premium increases by 1%,then the required return will increase for stocks that have a beta greater than 1.0,but it will decrease for stocks that have a beta less than 1.0.
• B) The effect of a change in the market risk premium depends on the slope of the yield curve.
• C) If the market risk premium increases by 1%,then the required return on all stocks will rise by 1%.
• D) If the market risk premium increases by 1%,then the required return will increase by 1% for a stock that has a beta of 1.0.
• E) The effect of a change in the market risk premium depends on the level of the risk-free rate.

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Definitions:

Nonbiological Reservoirs

Natural or artificial environments that do not involve living organisms, which can store various substances or elements.

Biogeochemical Cycles

Natural pathways by which essential elements or compounds move through the biosphere, lithosphere, atmosphere, and hydrosphere.

Carbon

A chemical element with symbol C, capable of forming many compounds including carbon dioxide and organic molecules.

Atmosphere

The layer of gases surrounding a planet or celestial body, gravitationally bound to it, and essential for many life forms.