Which of the Following Statements Is Most Correct

question 66

Multiple Choice

Which of the following statements is most correct?

• A) The required return on a firm's common stock is determined by the firm's systematic (or market)risk.If its systematic risk is known,and if it is expected to remain constant,the analyst has sufficient information to specify the firm's required return.
• B) A security's beta measures its nondiversifiable (systematic,or market)risk relative to that of most other securities.
• C) If the returns of two firms are negatively correlated,one of them must have a negative beta.
• D) A stock's beta is less relevant as a measure of risk to an investor with a well-diversified portfolio than to an investor who holds only one stock.
• E) Statements b and c are both correct.

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Definitions:

Cost-Volume-Profit Graph

A visual representation that shows the relationship between cost, volume of production, and profit, to analyze how changes in variables affect profits.

Total Revenue

The overall amount of money generated by a business from its activities, such as sales of goods or services, before any expenses are subtracted.

Fixed Costs

Expenses that remain constant regardless of production or sales levels, like lease payments, wages, and coverage plans.

Variable Costs

Costs that vary directly with the level of production or sales volume, such as raw materials or commission on sales.