Assume That the Risk-Free Rate Remains Constant, but the Market

Multiple Choice

Assume that the risk-free rate remains constant, but the market risk premium declines. Which of the following is most likely to occur?

A) The required return on a stock with beta = 1.0 will not change.
B) The required return on a stock with beta > 1.0 will increase.
C) The return on "the market" will remain constant.
D) The return on "the market" will increase.
E) The required return on a stock with beta < 1.0 will decline.