Which of the Following Statements Is CORRECT

question 113

Multiple Choice

Which of the following statements is CORRECT?

• 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.

Differentiate between acronym and acrostic as mnemonic aids.

Recognize the importance and application of the memory process steps: intention, attention, association, retention, and recall.

Appreciate the relevance of matching learning strategies to one's learning style for improved memory retention.

Apply memory strategies to specific academic content areas such as history, calculus, and physics.

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Definitions:

Normal Model

A probability distribution that is symmetrical about its average, indicating that occurrences close to the mean are more common than those further away.

Central 68%

Central 68% is a statistical term that refers to the percentage of data within one standard deviation of the mean in a normal distribution, implying that about 68% of the data fall within this range.

Standard Deviation

A measure of the amount of variation or dispersion in a set of values, indicating how much the values differ from the mean.

IQR

Interquartile Range, a measure of variability, indicates the range within which the middle 50% of a data set lies.