Assume That the Risk-Free Rate,r_RF,increases but the Market Risk Premium,(r_M

question 68

Multiple Choice

Assume that the risk-free rate,r_RF,increases but the market risk premium,(r_M - r_RF) declines,with the net effect being that the overall required return on the market,r_M,remains constant.Which of the following statements is correct?

• A)The required return of all stocks will increase by the amount of the increase in the risk-free rate.
• B)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.
• C)Since the overall return on the market stays constant, the required return on each individual stock will remain constant.
• D)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.

---

Definitions:

Evolutionary Psychologists

Scientists who study the human mind and behavior from the perspective of evolution, focusing on how evolutionary principles influence psychological traits.

Behavioral Geneticists

Scientists who study the role of genetic and environmental influences on human behavior.

Genes

Segments of DNA located on chromosomes that contain the instructions for the development, functioning, and reproduction of organisms.

Proteins

Large, complex molecules that play many critical roles in the body, including in the structure, function, and regulation of tissues and organs.