Which of the Following Statements Is CORRECT

question 87

Multiple Choice

Which of the following statements is CORRECT?

• A) The slope of the Security Market Line is beta.
• B) Any stock with a negative beta must in theory have a negative required rate of return, provided r_RF is positive.
• C) If a stock's beta doubles, its required rate of return must also double.
• D) If a stock's returns are negatively correlated with returns on most other stocks, the stock's beta will be negative.
• E) If a stock has a beta of to 1.0, its required rate of return will be unaffected by changes in the market risk premium.

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Definitions:

Interest Rates

The cost of borrowing money, typically expressed as a percentage of the amount loaned, paid to the lender at regular intervals for the use of their money.

Bond Prices

The market value of a bond, which can fluctuate based on interest rates, the bond’s credit quality, and other factors.

Opportunity Cost

Cost associated with opportunities forgone when a firm’s resources are not put to their best alternative use.

Projected Net Present Value

An estimation of the present value of an investment's future net cash flows minus the initial investment cost.