Which of the Following Statements Is Most Correct

question 86

Multiple Choice

Which of the following statements is most correct?

• A) According to CAPM theory, the required rate of return on a given stock can be found by use of the SML equation:
• Ri = rRF + (rM - rRF)bi.
• Expectations for inflation are not reflected anywhere in this equation, even indirectly, and because of that the text notes that the CAPM may not be strictly correct.
• B) If the required rate of return is given by the SML equation as set forth in Statement a, there is nothing a financial manager can do to change his or her company's cost of capital, because each of the elements in the equation is determined exclusively by the market, not by the type of actions a company's management can take, even in the long run.
• C) Assume that the required rate of return on the market is currently rM = 15%, and that rM remains fixed at that level. If the yield curve has a steep upward slope, the calculated market risk premium would be larger if the 30-day T-bill rate were used as the risk-free rate than if the 30-year T-bond rate were used as rRF.
• D) Statements a and b are true.
• E) Statements a and c are true.

Explain the concept of certainty equivalent and its relation to risk attitudes.

Understand the concept of expected utility and how it guides decision-making under risk.

Apply the expected utility theory to analyze choices between certain and uncertain outcomes.

Interpret and graph utility functions to understand preferences over risky outcomes.

---

Definitions:

RNA Processing And Transport

The series of modifications RNA molecules undergo after transcription, including splicing, editing, and transport out of the nucleus to the cytoplasm for translation.

Repressor

A protein that binds to specific sites on DNA, preventing the transcription of certain genes and regulating gene expression.

RNA Polymerase

An enzyme responsible for synthesizing RNA from a DNA template, playing a crucial role in gene transcription.

Alternative RNA Splicing

A post-transcriptional process in which exons or introns are selectively included in or excluded from a final mRNA transcript, thus allowing a single gene to code for multiple proteins.