Which of the Following Statements Is CORRECT

question 53

Multiple Choice

Which of the following statements is CORRECT?

• A) A graph of the SML as applied to individual stocks would show required rates of return on the vertical axis and standard deviations of returns on the horizontal axis.
• B) The CAPM has been thoroughly tested,and the theory has been confirmed beyond any reasonable doubt.
• C) If two "normal" or "typical" stocks were combined to form a 2-stock portfolio,the portfolio's expected return would be a weighted average of the stocks' expected returns,but the portfolio's standard deviation would probably be greater than the average of the stocks' standard deviations.
• D) If investors become more risk averse,then (1)the slope of the SML would increase and (2)the required rate of return on low-beta stocks would increase by more than the required return on high-beta stocks.
• E) An increase in expected inflation,combined with a constant real risk-free rate and a constant market risk premium,would lead to identical increases in the required returns on a riskless asset and on an average stock,other things held constant.

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Definitions:

Amide

An organic compound characterized by a carbonyl group (C=O) attached to a nitrogen atom.

Primary Amines

Organic compounds characterized by the presence of a \(NH_2\) group attached to a primary carbon atom, one that is only bonded to one other carbon.

Diazonium Salt

A class of organic compounds containing a nitrogen double bonded to a nitrogen atom which is also bonded to a benzene ring, significant in synthetic organic chemistry.

Nitrile

Organic compounds containing the cyano group (-C≡N), noted for their use in the production of rubber, resins, and pharmaceuticals.