Answer: e. The required rate of return for an average stock will increase by an amount equal to the increase in the market risk premium.
Explanation:
The market risk premium is the interest rate over the risk-free rate that investors will be compensated with for taking on the risk. Returns consist of both the risk-free rate and a premium charged for risk.
If investors become more risk averse, they will have to be compensated for what they view as riskier investments by increasing the premium being given to them.
Should this happen, the return that they will require will therefore increase by the same amount that the premium has increased.