Which of the Following Statements Is Correct

question 29

Multiple Choice

Which of the following statements is correct?

• A)Well-diversified stockholders do not consider a firm's corporate risk when establishing their required rates of return.
• B)Undiversified stockholders, including the owners of small businesses, probably are more concerned about the corporate risk associated with a particular firm than are diversified stockholders.
• C)Empirical studies to determine the factors that affect required rates of return (r) have concluded that only market risk affects stock prices; i.e., neither corporate risk nor stand-alone risk has any impact on required rates of return.
• D)A firm's market risk is important, but it does not directly affect stock prices because it only affects the firm's beta.
• E)A firm's market risk is not an important factor in determining its required rate of return.

---

Definitions:

Discount Rate

In discounted cash flow analysis, it's the rate used to bring future cash flows down to their present worth.

Accounting Break-even Quantity

The number of units that must be sold to cover all costs, both fixed and variable, with no profit or loss.

Variable Costs

Outgoings that are contingent upon the scale of production operations.

Fixed Costs

These are expenses that do not change with the level of production or sales, such as rent, salaries, and insurance premiums.