Assume That in Recent Years Both Expected Inflation and the Market

question 115

Multiple Choice

Assume that in recent years both expected inflation and the market risk premium (r_M - r_RF) have declined.Assume also that all stocks have positive betas.Which of the following would be most likely to have occurred as a result of these changes?

• A)The required returns on all stocks would have fallen, but the decline would have been greater for stocks with lower betas.
• B)The required returns on all stocks would have fallen, but the fall would have been greater for stocks with higher betas.
• C)Required returns would have increased for stocks with betas greater than 1.0 but would have declined for stocks with betas less than 1.0.
• D)The required returns on all stocks would have fallen by the same amount.

Understand the role of consensus, consistency, and distinctiveness in attribution.

Identify factors influencing the formation of attributions according to Jones and Davis.

Recognize the self-serving bias in attribution.

Understand the impact of attributions on perceptions of ability and effort.

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Definitions:

Vertical Demand Curve

A demand curve that is vertical reflects an instance where the quantity demanded does not change in response to changes in price, indicating perfectly inelastic demand.

MR = MC

The optimal point in economic theory where marginal revenue equals marginal cost, leading to the most efficient level of production.

D = ATC

The condition where a firm's demand curve (D) equals its average total cost (ATC), often used in economic models to analyze firm behavior.

Selling Price

The actual price at which a product or service is sold to the customer.