Which of the Following Statements About Risk-Return Relationship Is Correct

question 66

Multiple Choice

Which of the following statements about risk-return relationship is correct?

• A) An increase in the expected inflation would lead to an increase in the required return on all the risky assets by the same amount, assuming all other things were 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) As a result of change in investors' risk aversion, the required rate of return on low-beta stocks is impacted more when compared to the required rate of return on high-beta stocks.
• D) If investors became more averse to risk, then the slope of the SML would become less steep.
• E) The market risk premium is lower for higher beta stocks and higher for lower beta stocks.

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Definitions:

Technological Complexity

Refers to the degree of sophistication, advancement, and difficulty involved in the technology of a product, system, or process.

System Scope

The boundaries or extent to which a system’s functionality, objectives, and deliverables are defined.

Uncertainty And Risk

The lack of certainty about the outcome, paired with the potential for a negative or undesirable event to occur.

Level Of Sophistication

The degree of complexity, advancement, or refinement in the development or design of systems, products, or techniques.