Which of the Following Statements Is CORRECT

question 54

Multiple Choice

Which of the following statements is CORRECT?

• A) 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.
• B) 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.
• C) 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.
• D) Portfolio diversification reduces the variability of returns (as measured by the standard deviation)of each individual stock held in a portfolio.
• E) A security's beta measures its non-diversifiable,or market,risk relative to that of an average stock.

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Definitions:

Overhead Costs

Expenses not directly tied to production but necessary for running the business, such as rent, utilities, and insurance.

Manufacturing Activities

Operations involved in the production of goods, including assembling raw materials, machining, and finishing products.

Manufacturing Overhead Costs

Indirect costs related to manufacturing that are not directly tied to specific products, such as maintenance, utilities, and management salaries.

Overhead Application

The process of assigning overhead costs to specific cost objects such as products or departments.