Which of the Following Statements Is Most Correct

question 2

Multiple Choice

Which of the following statements is most correct?

• A) If beta doubles, the required return doubles.
• B) If a share has a negative beta, its required return is negative.
• C) Higher beta shares have more company-specific risk, but do not necessarily have more market risk.
• D) If a portfolio's beta increases from 1.2 to 1.5, its required rate of return will increase by an amount equal to its market risk premium.
• E) If two shares have the same standard deviation and the correlation coefficient between the returns of two shares equals zero, an equally weighted portfolio of the two shares will have a standard deviation lower than that of individual shares.

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Definitions:

Price Floor

A government-imposed limit on how low a price can be charged for a product or service.

Price Floors

A government- or authority-imposed minimum price that can be charged for a commodity, which is typically set above the equilibrium price to protect producers.

Consumer Surplus

The gap between what consumers are prepared to pay for a product or service, and what they end up spending.

Producer Surplus

The difference between the amount producers are willing to accept for a good or service and the actual amount they receive, due to market price.