The required return can be affected by changes in the risk free rate, even if the risk premium remains constant.

Question

Quizplus · Accepted Answer

The required return is made up of the risk-free rate and the risk premium. If the risk-free rate increases, the required return will also increase, even if the risk premium remains constant. This is because investors will demand a higher return for taking on the same level of risk, due to the increased opportunity cost of investing in risk-free assets.

The Required Return Can Be Affected by Changes in the Risk