Which of the Following Statements Is CORRECT

question 128

Multiple Choice

Which of the following statements is CORRECT?

• A) If a stock has a beta of to 1.0,its required rate of return will be unaffected by changes in the market risk premium.
• B) The slope of the Security Market Line is beta.
• C) Any stock with a negative beta must in theory have a negative required rate of return,provided rRF is positive.
• D) If a stock's beta doubles,its required rate of return must also double.
• E) If a stock's returns are negatively correlated with returns on most other stocks,the stock's beta will be negative.

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Definitions:

Markowitz

Refers to Harry Markowitz, an economist known for his pioneering work in modern portfolio theory and investment diversification.

Systematic Risk

The type of risk inherent to the entire market or an entire market segment, also known as market risk, which cannot be eliminated through diversification.

Diversification

An investment strategy that spreads exposure across various assets to reduce risk.

Unsystematic Risk

The risk associated with an individual asset or firm, which can be mitigated through diversification.