Which of the Following Statements Is CORRECT

question 61

Multiple Choice

Which of the following statements is CORRECT?
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• A) ​The slope of the SML is determined by the value of beta.
• B) ​The SML shows the relationship between companies' required returns and their diversifiable risks.The slope and intercept of this line cannot be influenced by a firm's managers,but the position of the company on the line can be influenced by its managers.
• C) ​Suppose you plotted the returns of a given stock against those of the market,and you found that the slope of the regression line was negative.The CAPM would indicate that the required rate of return on the stock should be less than the risk-free rate for a well diversified investor,assuming investors expect the observed relationship to continue on into the future.
• D) ​If investors become less risk averse,the slope of the Security Market Line will increase.
• E) ​If a company increases its use of debt,this is likely to cause the slope of its SML to increase,indicating a higher required return on the stock.

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Definitions:

Shares Outstanding

The total number of a company's shares currently owned by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company’s insiders.

Statement Of Comprehensive Income

The statement of comprehensive income is a financial statement that includes all changes in equity during a period except those resulting from investments by and distributions to owners.

Depreciation

The accounting method of allocating the cost of a tangible asset over its useful life, reflecting its loss of value over time.

Taxable Income

The portion of an individual's or a corporation's income used to determine how much tax will be owed to the government in a specific tax period.