Which of the Following Statements Is CORRECTσ

question 61

Multiple Choice

Which of the following statements is CORRECTσ

• A) the sml shows the relationship between companies' required returns and their diversifiable risks. the slope and intercept of this line cannot be influenced by a firm's managers, but the position of the company on the line can be influenced by its managers.
• B) suppose you plotted the returns of a given stock against those of the market, and you found that the slope of the regression line was negative. the capm would indicate that the required rate of return on the stock should be less than the risk-free rate for a well-diversified investor, assuming investors expect the observed relationship to continue on into the future.
• C) if investors become less risk averse, the slope of the security market line will increase.
• D) if a company increases its use of debt, this is likely to cause the slope of its sml to increase, indicating a higher required return on the stock.
• E) the slope of the sml is determined by the value of beta.

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Definitions:

Free Agents

Individuals or entities that are available to provide services or work without being bound by long-term contracts, often used in the context of professional sports or employment.

Asymmetric Information

A situation in which one party in a transaction has more or superior information compared to another, often leading to an imbalance in the transaction.

Sole Proprietorship

The simplest form of business organization in which the owner is the business. Anyone who does business without creating a formal business entity has a sole proprietorship.

Professional Corporation

A type of corporation for professionals such as lawyers, doctors, and accountants, subject to specific regulatory provisions.