Which of the Following Statements Is Correct

question 79

Multiple Choice

Which of the following statements is correct?

• A) 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.
• B) Portfolio diversification reduces the variability of returns on an individual stock.
• C) When company specific risk has been diversified,the inherent risk that remains is market risk which is constant for all securities in the market.
• D) A stock with a beta of −1.0 has zero systematic (or market)risk.
• E) The SML relates required returns to firms' systematic (or market)risk.The slope and intercept of this line cannot be controlled by the financial manager.

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Definitions:

Price Floor

A legally imposed minimum price that can be charged for a good or service.

Quantity Supplied

The amount of a good or service that producers are willing and able to sell at a given price.

Quantity Demanded

The total amount of a good or service that consumers are willing and able to purchase at a specific price level at a given moment.

Free Market

An economic system where prices are determined by unrestricted competition between privately owned businesses.