Question

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 level of the risk-free rate.c. The effect of a change in the market risk premium depends on the slope of the yield curve.d. If the market risk premium increases by 1%, then the required return on all stocks will rise by 1%.e. 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.

Answer 1

Answer:

E. 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.