Decreases in the risk-free rate will reduce:
A)The market risk premium
B)The stock's risk premium
C)The stock's Beta
D)The stock's expected return

Question

Quizplus · Accepted Answer

Decreases in the risk-free rate will lead to a decrease in the cost of borrowing funds, which in turn will lower the expected return on investments. As a result, the expected return on the stock will reduce  since investors require less compensation for investing in risk-free securities. Therefore, D is the correct answer.  A, B, and C are incorrect as they are not related to the risk-free rate.

Decreases in the Risk-Free Rate Will Reduce