Which of the Following Statements Is CORRECT

question 13

Multiple Choice

Which of the following statements is CORRECT?

• A) The SML shows the relationship between companies' required returns and their diversifiable risks.The slope and intercept of this line cannot be influenced by a firm's managers, but the position of the company on the line can be influenced by its managers.
• B) Suppose you plotted the returns of a given stock against those of the market, and you found that the slope of the regression line was negative.The CAPM would indicate that the required rate of return on the stock should be less than the risk-free rate for a well-diversified investor, assuming investors expect the observed relationship to continue on into the future.
• C) If investors become less risk averse, the slope of the Security Market Line will increase.
• D) If a company increases its use of debt, this is likely to cause the slope of its SML to increase, indicating a higher required return on the stock.
• E) The slope of the SML is determined by the value of beta.

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Definitions:

Regressive Tax

A tax system that imposes a higher percentage rate of taxation on low-income earners than on high-income earners.

Fixed Dollar Amount

A specific, unchanging sum of money that does not vary with circumstances, often used in contracts or financial agreements.

Tax

A mandatory financial charge or levy imposed by a government on individuals or corporations to fund government spending and public expenditures.

State and Local Government

Various levels of government beneath the federal level, including states, cities, and counties, responsible for local governance and policy implementation.