If investors become more pessimistic about market conditions, what impact is anticipated for the required return on equities? The required return will:
A) decrease.
B) increase.
C) stay the same.
D) increase in the short-term but decrease in the long-term.

Question

Quizplus · Accepted Answer

When investors become more pessimistic, they perceive higher risk, leading to an increase in the risk premium demanded, thus increasing the required return on equities.

If Investors Become More Pessimistic About Market Conditions, What Impact