Assume That the Risk-Free Rate, RRF, Increases but the Market

question 10

Multiple Choice

Assume that the risk-free rate, rRF, increases but the market risk premium, (rM- rRF) , declines, with the net effect being that the overall required return on the market, rM, 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.

---

Definitions:

Adult Homosexual Orientation

A sexual orientation characterized by a consistent pattern of emotional, romantic, and/or sexual attractions to individuals of the same sex, typically identified or established during adulthood.

Longitudinal Study

A longitudinal study is a research design in which data is gathered for the same subjects repeatedly over a period of time, allowing for the observation of changes or developments.

Sexual Response Cycle

A model describing the physiological responses that occur during sexual activity, typically divided into four phases: excitement, plateau, orgasm, and resolution.

Masters and Johnson

Pioneers in sexual function research, known for their work on human sexual response and sexual disorders during the 20th century.