Assume that in recent years both expected inflation and the

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Assume that in recent years both expected inflation and the market risk premium (rM ? rRF) have declined. Assume also that all stocks have positive betas. Which of the following would be most likely to have occurred as a result of these changes?

a The required returns on all stocks have fallen, but the decline has been greater for stocks with lower betas.

b The required returns on all stocks have fallen, but the fall has been greater for stocks with higher betas.

c The average required return on the market, rM, has remained constant, but the required returns have fallen for stocks that have betas greater than 1.0.

d Required returns have increased for stocks with betas greater than 1.0 but have declined for stocks with betas less than 1.0.

e The required returns on all stocks have fallen by the same amount.

Reference no: EM13606124

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