Which of the Following Statements Is Correct

question 79

Multiple Choice

Which of the following statements is correct?

• A) Risk refers to the chance that some unfavorable event will occur,and a probability distribution is completely described by a listing of the likelihood of unfavorable events.
• B) Portfolio diversification reduces the variability of returns on an individual stock.
• C) When company specific risk has been diversified,the inherent risk that remains is market risk which is constant for all securities in the market.
• D) A stock with a beta of −1.0 has zero systematic (or market)risk.
• E) The SML relates required returns to firms' systematic (or market)risk.The slope and intercept of this line cannot be controlled by the financial manager.

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Definitions:

Phantom Stock Plan

A type of employee benefit plan that gives selected employees many of the benefits of stock ownership without giving them any company stock, often tied to the performance or value of the company's stock.

Company Stock

Shares of ownership in a corporation, representing a claim on part of the corporation's assets and earnings.

Performance-Based Pay

A compensation system where an employee's pay is directly tied to their performance metrics, aimed at incentivizing high levels of job performance.

Company Stock

Shares of ownership in a corporation, providing shareholders with a claim to part of the company’s profits and assets.