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:

Imprinting

A process occurring during a critical period in the development of an organism, in which that organism responds to a stimulus in a manner that will afterward be difficult to modify.

Assimilation

The cognitive process by which an individual incorporates new information or experiences into their existing framework of knowledge or schema.

Embryonic Stage

A critical phase of prenatal development that spans from implantation of the zygote in the uterine wall through the eighth week, where major organs and structures begin to form.

Zygote

A fertilized ovum (egg cell).