Which of the Following Statements Is CORRECT

question 122

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 likelihood 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:

Common Fixed Expenses

Overhead costs that are shared by different departments or products within a company and do not vary with production volume.

Break-Even

The financial point where a company's revenues exactly match its expenses, indicating no net profit or loss.

Common Fixed Expenses

Common fixed expenses are costs that remain constant in total regardless of changes in the level of activity or volume, such as rent and salaries, shared across departments or projects.

Net Operating Income

Represents the profit a company generates from its regular business operations, excluding expenses and revenues from non-operating activities.