If the Firm Is Being Operated So as to Maximize

question 2

Multiple Choice

If the firm is being operated so as to maximize shareholder wealth,and if our basic assumptions concerning the relationship between risk and return are true,then which of the following should be true?

• A)If an asset's beta is larger than the firm's beta, then the required return on the asset is less than the required return on the firm.
• B)If the beta of the asset is smaller than the firm's beta, then the required return on the asset is greater than the required return on the firm.
• C)If the beta of the asset is greater than the firm's beta prior to the addition of that asset, then the firm's beta after the purchase of the asset will be smaller than the original firm's beta.
• D)If the beta of an asset is larger than the firm's beta prior to the addition of that asset, then the required return on the firm will be greater after the purchase of that asset than prior to its purchase.
• E)None of the statements is true.

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Definitions:

East Coast

The easternmost boundary of a landmass or territory, which, in a country like the United States, refers to the coastline along the Atlantic Ocean.

Lithosphere

The rigid outer layer of the Earth, consisting of the crust and upper mantle, involved in plate tectonics movements.

Crust Thickness

The measure of the Earth's outermost layer's depth, which varies between oceanic and continental regions.

Crust Composition

The chemical and physical composition of the Earth's crust, including elements such as oxygen, silicon, aluminum, and iron.