Which of the Following Statements Is FALSE

question 34

Multiple Choice

Which of the following statements is FALSE?

• A)Fluctuations of a stock's returns that are due to firm-specific news are common risks.
• B)The volatility in a large portfolio will decline as the size of the portfolio increases until only the systematic risk remains.
• C)When we combine many stocks in a large portfolio,the firm-specific risks for each stock will average out and be diversified.
• D)The risk premium of a security is determined by its systematic risk and does not depend on its diversifiable risk.

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Definitions:

Market Value

The selling price of an asset in a competitive auction framework.

Owners' Equity

The ownership stake of shareholders in a company, reflected by the value of its assets minus its liabilities.

Capital Structure

The blend of financing from debt and equity that a company employs to finance its growth and ongoing activities.

Bank Financing

The process of obtaining funds for business activities, personal needs, or other purposes from a bank.