Question
According to the textbook (Financial Management, Theory & Practice, 16 Ed., ISBN: 978-1-337-90260-1), to mitigate the negative effects of Covid-19 episode on the U.S. economy,
According to the textbook (Financial Management, Theory & Practice, 16 Ed., ISBN: 978-1-337-90260-1), to mitigate the negative effects of Covid-19 episode on the U.S. economy, the Federal Reserve Bank (US Central Bank) lowered the federal fund interest rate which also led to lower risk-free rate and other market interest rates such as mortgage rates and prime interest rates. What effect this reduction in risk-free rate would likely have on the required returns and stock prices of technology and financial (banks) firms in the earlier part of pandemic in 2020 according to the predictions of CAPM as shown in Figure 6-10? Limit your answers to ten sentences.
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