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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