An increase in the Treasury Bill rate ________ the required rate of return of a common stock.
A) has no effect on
B) increases
C) decreases
D) cannot be determined by

Question

Quizplus · Accepted Answer

An increase in the Treasury Bill rate is typically indicative of a strengthening economy and higher inflation expectations. This leads to a higher required rate of return for investors, who will demand a higher return on their investments to compensate for the increased inflation risk. This higher required rate of return will also apply to common stocks, leading to an increase in their required rate of return.

An Increase in the Treasury Bill Rate ________ the Required