Which of the Following Statements Is FALSE

question 1

Multiple Choice

Which of the following statements is FALSE?

• A)The conflict of interest between managers and investors derives from the separation of ownership and control in a corporation.
• B)Any discussion of corporate controls-the system of controls,regulations,and incentives designed to prevent fraud-is a story of conflicts of interest and attempts to minimize them.
• C)Once control and ownership are separated a conflict of interest arises between the owners and the people in control of a corporation.
• D)The separation of ownership and control is perhaps the most important reason for the success of the corporate organizational form.Because any investor can hold an ownership stake in a corporation,investors are able to diversify and thus,with no costs,reduce their risk exposures.

Explain the impact of changes in expected inflation and the market risk premium on required returns.

Apply the principles of portfolio diversification and understand its effect on risk reduction.

Understand the concept of the Security Market Line (SML) and its implications for required returns based on beta.

Analyze the effects of changes in investor risk aversion on the market risk premium and the slope of the SML.

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Definitions:

End of Quarter Payments

Payments made at the conclusion of each quarter, often related to financial agreements or obligations.

Lump Amount

A single large sum payment or investment, as opposed to smaller, regular payments or investments.

Retirement

The period in life when one chooses to permanently leave the workforce behind, usually upon reaching a certain age or financial standing.

Compounded Semi-Annually

A method where interest is calculated and added to the principal at six-month intervals, resulting in interest on interest.