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:

Cooperation

The process of working together towards the same end or goal.

Incest

Sexual relations between close family members, which are considered illegal and/or socially taboo in many cultures.

Ancient Egyptian

Referring to the civilization of ancient Egypt, known for its significant achievements in various fields such as architecture, writing, medicine, and government, existing from the prehistoric period until the end of the Pharaonic empire around 30 BC.

Behavioural Archaeology

Behavioural archaeology studies past human activities through material remains, examining how people use objects and alter their environments.