Which of the Following Statements Is CORRECT

question 246

Multiple Choice

Which of the following statements is CORRECT?

• A)Portfolio diversification reduces the variability of returns on an individual stock.
• B)Risk refers to the chance that some unfavorable event will occur, and a probability distribution is completely described by a listing of the likelihoods of unfavorable events.
• C)The SML relates a stock's required return to its market risk. The slope and intercept of this line cannot be controlled by the firms' managers, but managers can influence their firms' positions on the line by such actions as changing the firm's capital structure or the type of assets it employs.
• D)A stock with a beta of −1.0 has zero market risk if held in a 1-stock portfolio.
• E)When diversifiable risk has been diversified away, the inherent risk that remains is market risk, which is constant for all stocks in the market.

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Definitions:

Congressional Hearing

A formal meeting or session of a U.S. congressional committee to gather information, witness testimonies, or discuss legislation.

Observational Learning

Learning that occurs by watching the actions of others and the consequences of those actions, also known as social learning or modeling.

Bandura's Theory

Refers to Albert Bandura's Social Learning Theory, which posits that people learn from one another through observation, imitation, and modeling.

Latent Learning

Learning that occurs without the learning process being immediately manifest in the learner's behavior, which becomes apparent when a suitable motivation is presented.