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:

ATC

Average Total Cost, which is the sum of all production costs divided by the quantity of output produced, a critical factor in economic analysis of a company's efficiency.

Shut-down Point

The level of operation at which a firm's total revenue is equal to its total variable costs, below which it is more beneficial for a firm to cease production.

Average Variable Cost

The variable cost (cost that changes with production volume) divided by the quantity of output produced.

Profit-maximizing

Refers to the process by which a company determines the price and output level that returns the greatest profit.