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.
b. The effect of a change in the market risk premium depends on the slope of the yield curve.
c. If the market risk premium increases by 1%, then the required return on all stock will rise by 1%.
d. If the market risk premium increases by 1%, then the required return will increase by 1%, then the required return will increase by 1% for a stock that has a beta of 1.0.
e. The effect of a change on the market risk premium depends on the level of the risk-free rate.
Solution Summary
This solution is comprised of a detailed explanation to answer which of the following statements is correct. It determines which is correct and provides an example to explain the reason.
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