Which Statement Is Correct

question 101

Multiple Choice

Which statement is correct?

• A) the superior performance of value stocks is exactly what the CAPM would predict.
• B) the CAPM predicts that investors are concerned only with the risk that cannot be diversified away.
• C) few financial managers in practice use the CAPM to estimate the cost of capital.
• D) the CAPM is a model of actual returns whereas the cost of capital is concerned with expected returns.

---

Definitions:

Restrictive Covenant

A clause in a contract that limits certain actions of the parties involved, often used in employment and real estate agreements.

Amortized Debt

A loan in which the principal and interest are paid off in equal installments over a predetermined period.

Coupon

The periodic interest payment made to the bondholders during the life of the bond.

Call Provisions

Terms in a bond or other fixed-income security's contract that allow the issuer to repay the debt before its maturity date.