Which of the following statements is CORRECTσ (Assume that the risk-free rate is a constant.)
A) the effect of a change in the market risk premium depends on the slope of the yield curve.
B) if the market risk premium increases by 1%, then the required return on all stocks will rise by 1%.
C) 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.
D) the effect of a change in the market risk premium depends on the level of the risk-free rate.
E) 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.

Question

Quizplus · Accepted Answer

The required return on a stock is calculated using the Capital Asset Pricing Model (CAPM), which is: Required Return = Risk-Free Rate + Beta * Market Risk Premium. If the market risk premium increases by 1%, the required return will increase by 1% for a stock with a beta of 1.0.

Which of the Following Statements Is CORRECTσ (Assume That the Risk-Free