Which of the Following Statements Is CORRECT

question 113

Multiple Choice

Which of the following statements is CORRECT?

• A) The CAPM has been thoroughly tested, and the theory has been confirmed beyond any reasonable doubt.
• B) If two "normal" or "typical" stocks were combined to form a 2-stock portfolio, the portfolio's expected return would be a weighted average of the stocks' expected returns, but the portfolio's standard deviation would probably be greater than the average of the stocks' standard deviations.
• C) If investors become more risk averse, then (1) the slope of the SML would increase and (2) the required rate of return on low-beta stocks would increase by more than the required return on high-beta stocks.
• D) An increase in expected inflation, combined with a constant real risk-free rate and a constant market risk premium, would lead to identical increases in the required returns on a riskless asset and on an average stock, other things held constant.
• E) A graph of the SML as applied to individual stocks would show required rates of return on the vertical axis and standard deviations of returns on the horizontal axis.

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Definitions:

Correct Case

The appropriate or accurate grammatical case (nominative, accusative, etc.) used in a language.

Capitalization

The use of uppercase letters at the beginning of sentences or proper nouns; also refers to the total value of a company's shares on the stock market.

Microcomputers

Small-scale computers designed for individual use, offering processing capabilities for software applications and internet access, typical examples include personal computers and laptops.

Fourth Of July

This term refers to Independence Day in the United States, a federal holiday commemorating the adoption of the Declaration of Independence on July 4, 1776.