Which of the Following Statements Is CORRECT

question 62

Multiple Choice

Which of the following statements is CORRECT?

• A) Other things held constant, if investors suddenly become convinced that there will be deflation in the economy, then the required returns on all stocks should increase.
• B) If a company's beta were cut in half, then its required rate of return would also be halved.
• C) If the risk-free rate rises by 0.5% but the market risk premium declines by that same amount, then the required rates of return on stocks with betas less than 1.0 will decline while returns on stocks with betas above 1.0 will increase.
• D) If the risk-free rate rises by 0.5% but the market risk premium declines by that same amount, then the required rate of return on an average stock will remain unchanged, but required returns on stocks with betas less than 1.0 will rise.
• E) If a company's beta doubles, then its required rate of return will also double.

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Definitions:

Operating Activities

Activities that relate to the core operations of a business, including the production, sales, and distribution of the business's goods or services.

Investing Activities

Financial transactions related to the acquisition or disposal of long-term assets and investments.

Direct Method

An accounting method used to allocate service department costs directly to producing departments without any intermediate allocation.

Operating Activities

Operating activities involve the primary, day-to-day activities that a company engages in to generate revenue, such as sales, provision of services, and production.