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:

Perfect Competition

A market structure characterized by a large number of small firms, identical products, and easy entry and exit, which leads to firms being price takers.

Public Ownership

The case in which goods are supplied by the government or by a firm owned by the government to protect the interests of the consumer in response to natural monopoly.

High-Quality Products

Goods that meet or exceed customer expectations in terms of durability, reliability, performance, and design.

Short-Run Supply Curve

A graphical representation showing the quantity of goods that producers are willing and able to sell at different prices over a short period of time, during which at least one of the firm's inputs is fixed.