Which one of the following statement is correct? A. If the market risk premium increases by...

 

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Which one of the following statement is correct? 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. If the market risk premium increases by 1%, then the required return on all stocks will rise by 1%. C. The effect of a change in the market risk premium depends on the level of the risk- free rate. D. If a company's beta doubles, then its required rate of return will also double. E. 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 (i.e. beta-1) will remain unchanged, but required returns on stocks with betas less than 1.0 will rise. Which one of the following statement is correct? 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. If the market risk premium increases by 1%, then the required return on all stocks will rise by 1%. C. The effect of a change in the market risk premium depends on the level of the risk- free rate. D. If a company's beta doubles, then its required rate of return will also double. E. 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 (i.e. beta-1) will remain unchanged, but required returns on stocks with betas less than 1.0 will rise.

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Answer E If the riskfree rate rises by 05 but the market risk premium declines by that same amount t... View the full answer