Bob is an optomist and he expects the required rate of return to decrease across the board on all equity securities (stocks), ceteris paribus. From this we can infer that Bob expects:

A decrease in all stock values.

Dividend-paying stocks to maintain a constant price while non-dividend paying stocks decrease in value.

Dividend-paying stocks to increase in price while non-dividend paying stocks remain constant in value.

An increase in all stock values.

All stock values to remain constant.

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Decrease across the board on all equity securities : Bob is an optomist and he expects the required rate of return to decrease across the board on all equity securities (stocks), |

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The bonds have more interest rate risk : At issue these bonds were rated BBB, but today they are rated AAA. The bonds have more interest rate risk than when they were issued. |

Related to the term structure of interest rates : Which one of the following risk-premiums, by definition, is not related to the term structure of interest rates (i.e. shape of the yield curve)? |

Make an accept-reject decision based on the results in part : Compute the values of i*’s for this project. Make an accept-reject decision based on the results in part |

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