Which of the Following Statements Is FALSE

question 84

Multiple Choice

Which of the following statements is FALSE?

• A) The risk premium of a security is determined by its systematic risk and does not depend on its diversifiable risk.
• B) When we combine many stocks in a large portfolio, the firm-specific risks for each stock will average out and be diversified.
• C) Fluctuations of a stock's return that are due to firm-specific news are common risks.
• D) The volatility in a large portfolio will decline until only the systematic risk remains.

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Definitions:

Selling Price

The price of a good or service is established based on considerations like the cost of production, the level of demand in the market, and the presence of competitive products or services.

Absorption Costing

A costing method within accounting that considers all costs involved in manufacturing—including direct materials, direct labor, and all overhead (variable and fixed)—in establishing a product’s price.

Markup Percentage

The percent added to the cost price of goods to cover overhead and profit.

Required Return

The minimum expected return an investor demands for an investment, considering the risk associated with it.