Which of the Following Statements Is Correct

question 43

Multiple Choice

Which of the following statements is correct?

• A) If a firm's stockholders are well diversified, we know from theory and from studies of market behavior that corporate risk is not important.
• B) Undiversified stockholders, including the owners of small businesses, are more concerned about corporate risk than market risk.
• C) Empirical studies of the determinants of required rates of return (k) have found that only market risk affects stock prices.
• D) Market risk is important but does not have a direct effect on stock price because it only affects beta.
• E) Market risk does not play any role in determining the rate of return on an investment.

---

Definitions:

Cost-Volume Analysis

A method to determine how changes in costs and volume affect a company's operating income and net income.

Low-Cost Choice

A decision-making strategy focused on selecting options that minimize financial expenditure while meeting specified requirements.

Pythagorean Theorem

A fundamental principle in geometry stating that in a right-angled triangle, the square of the length of the hypotenuse is equal to the sum of the squares of the lengths of the other two sides.

Road Building

The engineering and construction process focused on designing, constructing, and maintaining roads.