If the Firm Is Being Operated So as to Maximize

question 7

Multiple Choice

If the firm is being operated so as to maximize shareholder wealth, and if our basic assumptions concerning the relationship between risk and return are true, then which of the following should be true?

• A) If the beta of the asset is larger than the firm's beta, then the required return on the asset is less than the required return on the firm.
• B) If the beta of the asset is smaller than the firm's beta, then the required return on the asset is greater than the required return on the firm.
• C) If the beta of the asset is greater than the corporate beta prior to the addition of that asset, then the corporate beta after the purchase of the asset will be smaller than the original corporate beta.
• D) If the beta of an asset is larger than the corporate beta prior to the addition of that asset, then the required return on the firm will be greater after the purchase of that asset than prior to its purchase.
• E) If the beta of an asset is larger than the firm's beta, then the required rate of return is equal to the beta.

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Definitions:

Illness

A condition that negatively affects a person's normal physiological or psychological state, often characterized by specific signs and symptoms.

Disease

A disorder of structure or function in a human, animal, or plant, especially one that produces specific signs or symptoms or that affects a specific location and is not simply a direct result of physical injury.

Therapeutic Diets

Specially designed eating plans to manage or treat medical conditions, prescribed and supervised by healthcare professionals.

Settle

To resolve or reach an agreement on a matter, dispute, or financial transaction.