Which of the Following Statements Is Most Correct

question 21

Multiple Choice

Which of the following statements is most correct?

• A) The SML relates required returns to firms' market risk. The slope and intercept of this line cannot be controlled by the financial manager.
• B) The slope of the SML is determined by the value of beta.
• C) If 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 that the observed relationship is expected to continue on into the future.
• D) If investors become less risk averse, the slope of the Security Market Line will increase.
• E) Statements a and c are true.

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Definitions:

Exemption Clause

A contractual term that limits the liability of one of the parties under certain circumstances or for specific types of damages.

Fundamental Obligation

A basic or essential duty bound by law or contract that a party is required to perform.

Anticipatory Breach

A situation in contract law where it is indicated by one party ahead of time that they will not be fulfilling the contract terms.

Victim Sue

Refers to the process by which a victim of a wrong or injury files a lawsuit against the responsible party to seek compensation or redress.