Quiz Ch 08 – T/F CAPM, Inflation, and Rate Changes
Fundamentals of Financial Management, Concise
Brigham and Houston
09th Edition
True or false: In the event of an anticipated inflation-driven escalation in money prices, such as interest rates and equity capital costs, the risk-free rate will also rise. Absent a shift in investor risk aversion, the market risk premium (rM – rRF) remains constant. Additionally, if stocks’ betas remain unchanged, the required rate of return for each stock, as determined by the CAPM, will rise by a corresponding amount to the anticipated inflation increase.