Which of the Following Statements Is Correct

question 6

Multiple Choice

Which of the following statements is correct?

• A)If investors become more risk averse but r_RF does not change, then the required rate of return on high-beta stocks will rise and the required return on low-beta stocks will decline, but the required return on an average-risk stock will not change.
• B)An investor who holds just one stock will generally be exposed to more risk than an investor who holds a portfolio of stocks, assuming the stocks are all equally risky.
• C)The slope of the yield curve has no effect on the slope of the SML.
• D)Assume that the required rate of return on the market, r_M, is given and fixed at 10%. If the yield curve were upward sloping, then the Security Market Line (SML) would have a steeper slope if 1-year Treasury securities were used as the risk-free rate than if 30-year Treasury bonds were used for r_RF.

---

Definitions:

Covariance

A measure indicating the extent to which two variables change together, signifying the direction of their linear relationship.

Standard Deviation

A statistic that quantifies the amount of variation or dispersion of a set of data values, typically used to measure how spread out the numbers in a data set are.

Slope

A measure of the steepness, incline, or grade of a line, indicating the ratio of the vertical change to the horizontal change between two points on the line.

90th Percentile

A value below which 90% of the data points in a dataset fall.