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Assume that investors have recently become less risk averse, so the market risk premium has ...

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Assume that investors have recently become less risk averse, so the market risk premium has ...

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

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

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The required rate of return for an average stock will decrease by an amount equal to the decrease in the market risk premium.

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The required rate of return on a riskless bond will increase.

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The required rate of return for each individual stock in the market will decrease by an amount greater than the decrease in the market risk premium.

Textbook

Financial Management: Theory and Practice

Edition: 4^th

Authors: Brigham, Ehrhardt, Gessaroli, Nason

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