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Basic Question 5 of 6
Investors demand a higher risk premium on small- relative to large- stocks. This premium is expected to ______ in recessions.
B. stay the same
C. fall
A. rise
B. stay the same
C. fall
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Learning Outcome Statements
explain how the phase of the business cycle affects short-term and long-term earnings growth expectations;
explain the relationship between the consumption hedging properties of equity and the equity risk premium;
describe cyclical effects on valuation multiples;
CFA® 2025 Level II Curriculum, Volume 6, Module 37.