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Investors unexpectedly become more risk averse, so the market risk premium (MRP) rises. Assume that the capital asset pricing model (CAPM) is correct and that
Investors unexpectedly become more risk averse, so the market risk premium (MRP) rises. Assume that the capital asset pricing model (CAPM) is correct and that risk free assets are fixed coupon government bonds with zero credit risk. Which of the following effects is NOT likely to happen? Select one: a. Fall in systematically risky assets' required returns. b. Fall in systematically risky assets' prices. c. Fall in systematically risky assets' price-to-earnings (PE) ratios. d. No change in risk free assets' required returns, prices or PE ratios
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