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:

Major Currencies

The world's most widely traded currencies, including the U.S. dollar, Euro, Japanese yen, and British pound, among others.

Foreign Exchange

The market in which currencies are traded and exchange rates are determined.

Demand Curve

A graph that shows the relationship between the price of a good and the quantity of that good that consumers are willing to purchase.

Currency Value

The worth of a particular currency in terms of another currency or the amount of goods and services that can be exchanged for it.