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:

Run Winding

The winding of a split-phase motor that remains energized during operation.

Resistors

Electronic components designed to introduce a specific amount of resistance to an electrical current, used in circuits to manage current flow.

Inductance

A property of an electrical conductor by which a change in current flowing through it induces an electromotive force both in itself (self-inductance) and in nearby conductors (mutual inductance).

Capacitors

Components in electrical circuits that store and release electrical energy, characterized by their capacitance value, which measures the ability to store charge per voltage unit.