Which of the following statements is CORRECT? (Assume that the risk-free rate is

Question

Which of the following statements is CORRECT? (Assume that the risk-free rate is a constant.)Answer 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. The effect of a change in the market risk premium depends on the slope of the yield curve. If the market risk premium increases by 1%, then the required return on all stocks will rise by 1%. 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. The effect of a change in the market risk premium depends on the level of the risk-free rate. 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. The effect of a change in the market risk premium depends on the slope of the yield curve. If the market risk premium increases by 1%, then the required return on all stocks will rise by 1%. 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. The effect of a change in the market risk premium depends on the level of the risk-free rate. 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. The effect of a change in the market risk premium depends on the slope of the yield curve. If the market risk premium increases by 1%, then the required return on all stocks will rise by 1%. 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. The effect of a change in the market risk premium depends on the level of the risk-free rate.

Explanation / Answer

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. 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.

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.