Which of the Following Statements Is CORRECT

question 86

Multiple Choice

Which of the following statements is CORRECT?

• A) If an investor buys enough stocks, he or she can, through diversification, eliminate all of the diversifiable risk inherent in owning stocks.Therefore, if a portfolio contained all publicly traded stocks, it would be essentially riskless.
• B) The required return on a firm's common stock is, in theory, determined solely by its market risk.If the market risk is known, and if that risk is expected to remain constant, then no other information is required to specify the firm's required return.
• C) Portfolio diversification reduces the variability of returns (as measured by the standard deviation) of each individual stock held in a portfolio.
• D) A security's beta measures its non-diversifiable, or market, risk relative to that of an average stock.
• E) A stock's beta is less relevant as a measure of risk to an investor with a well-diversified portfolio than to an investor who holds only that one stock.

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Definitions:

Optimal Quantity

The most efficient level of production or output that minimizes cost and maximizes profit for a firm.

Pollution Abatement

Measures and strategies implemented to reduce, manage, and control environmental pollution.

Marginal Social Cost

The total cost to society of producing an additional unit of a good or service, including private costs and any externalities.

Emissions Control

Regulations and technologies designed to reduce pollution and greenhouse gas emissions from various sources.