Which of the Following Statements Is Most Correct

question 41

Multiple Choice

Which of the following statements is most correct?

• A) An increase in expected inflation could be expected to increase the required return on a riskless asset and on an average share by the same amount, other things held constant.
• B) A graph of the SML would show required rates of return on the vertical axis and standard deviations of returns on the horizontal axis.
• C) If two "normal" or "typical" shares were combined to form a 2-share portfolio, the portfolio's expected return would be a weighted average of the shares' expected returns, but the portfolio's standard deviation would probably be greater than the average of the shares' standard deviations.
• D) If investors became more averse to risk, then (1) the slope of the SML would increase and (2) the required rate of return on low-beta shares would increase by more than the required return on high-beta shares.
• E) The CAPM has been thoroughly tested, and the theory has been confirmed beyond any reasonable doubt.

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Definitions:

Attitudes

A rephrased definition: Stable, learned predispositions to respond in a consistently favorable or unfavorable manner towards a given object or situation.

Cognitive Consistency

Cognitive Consistency refers to the desire of individuals to maintain harmony and consistency among their beliefs, attitudes, and behaviors to avoid dissonance.

Thoughts

Mental considerations, reflections, or meditations, often reflecting one's cognitive processes or attitudes.

Feelings

The emotional responses or states that arise from one's circumstances, moods, or relationships with others.