During the coming year, the market risk premium (rM ? rRF), is expected to fall, while the risk-free rate, rRF, is expected to remain the same. Given this forecast, which of the following statements is CORRECT?
A The required return will increase for stocks with a beta less than 1.0 and will decrease for stocks with a beta greater than 1.0.
B The required return on all stocks will remain unchanged.
C The required return will fall for all stocks, but it will fall more for stocks with higher betas.
D The required return for all stocks will fall by the same amount. E The required return will fall for all stocks, but it will fall less for stocks with higher betas.

If the Market Risk Premium is expected to fall, it means investor require less return for the same investment, it happens because when you make an investment you compare you return with the WACC (discount rate for investments) which includes the Market Risk Premium, if the rate is lower the investor will require less return.

The impact through Beta ratio will be higher if the company's beta is more than one, because this ratio amplify the impact of the Market Risk Premium either up or down.