Which of the Following Statements Is CORRECT

question 13

Multiple Choice

Which of the following statements is CORRECT?

• 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:

Referent Power

A form of influence based on the leader’s personal relationships with others, where followers identify with, like, or respect the leader.

Legitimate Power

A form of authority where power is used based on a person's organizational role or position rather than personal qualities or abilities.

Organizational Politics

The activities and behaviors employees engage in to gain power and achieve their goals within a workplace, often involving influence and networking.

Political Behavior

involves actions not officially sanctioned by an organization that are aimed at influencing the distribution of advantages and disadvantages within it.