Which of the Following Statements Is CORRECTσ

question 9

Multiple Choice

Which of the following statements is CORRECTσ

• A) the capm has been thoroughly tested, and the theory has been confirmed beyond any reasonable doubt.
• B) 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.
• C) 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.
• D) 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.
• E) 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.

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Definitions:

Dividend Income

Income received from owning shares in a company, typically paid out of the company's profits.

Financial Statements

Documents that provide an overview of a business's financial condition, including balance sheet, income statement, and cash flow statement, among others.

Joint Ventures

A commercial enterprise undertaken jointly by two or more parties which otherwise retain their distinct identities.

Private Corporations

Businesses owned by private individuals or entities, characterized by not having shares publicly traded on stock exchanges.