Which of the Following Statements Is CORRECT

question 53

Multiple Choice

Which of the following statements is CORRECT?

• A) 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.
• B) The CAPM has been thoroughly tested,and the theory has been confirmed beyond any reasonable doubt.
• C) 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.
• D) 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.
• E) 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.

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Definitions:

Anxiety Disorder

A psychiatric condition marked by overwhelming sensations of fear, anxiety, or worry that adversely affect daily functioning.

Conversion Disorder

A psychological disorder characterized by neurological symptoms, such as paralysis or blindness, that are not attributable to any medical condition but are associated with psychological factors.

Obsessive-compulsive Disorder

A mental health disorder characterized by recurrent, unwanted thoughts (obsessions) and repetitive behaviors (compulsions) that the individual feels driven to perform.

Multiple-personality Disorder

Now referred to as Dissociative Identity Disorder, it is a psychological condition where two or more distinct and separate identities or personality states are present in, and alternately take control of, an individual.