Which of the Following Statements Is CORRECT

question 107

Multiple Choice

Which of the following statements is CORRECT?

• A) When diversifiable risk has been diversified away,the inherent risk that remains is market risk,which is constant for all stocks in the market.
• B) Portfolio diversification reduces the variability of returns on an individual stock.
• C) Risk refers to the chance that some unfavorable event will occur,and a probability distribution is completely described by a listing of the likelihoods of unfavorable events.
• D) The SML relates a stock's required return to its market risk.The slope and intercept of this line cannot be controlled by the firms' managers,but managers can influence their firms' positions on the line by such actions as changing the firm's capital structure or the type of assets it employs.
• E) A stock with a beta of -1.0 has zero market risk if held in a 1-stock portfolio.

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Definitions:

Common Stock

Common stock represents ownership interests in a corporation, giving shareholders voting rights and a share in the company’s profits through dividends.

Common Stock

A form of corporate equity ownership, a type of security that represents ownership in a corporation and a claim on part of its profits.

Journal Entry

A recording in the accounting ledger that notes all the financial transactions of a business.

Prepaid Insurance

An asset account that reflects the amount paid for insurance policies in advance, before the coverage period begins.