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    Market Risk Premium

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    Assume that investors have recently become more risk averse, so the market risk premium has increased. Also, assume that the risk-free rate and expected inflation have not changed. Which of the following is most likely to occur?

    - The required rate of return for an average stock (beta = 1) will increase by an amount equal to the increase in the market risk premium.

    - The required rate of return will decline for stocks whose betas are less than 1.0.

    - The required rate of return on the market, rM, will not change as a result of these changes.

    - The required rate of return for each individual stock in the market will increase by an amount equal to the increase in the market risk premium.

    - The required rate of return on a riskless bond will decline

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    https://brainmass.com/economics/risk-analysis/market-risk-premium-331714

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    - The required rate of return for an average stock (beta = 1) will increase by an amount ...

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    The solution explains the correct alternative in relation to market risk premium.

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