Which One of the Following Statements Is Correct

question 46

Multiple Choice

Which one of the following statements is correct?

• A)The expected rate of return on any security,given multiple states of the economy,must be positive.
• B)There is an inverse relationship between the level of risk and the risk premium given a risky security.
• C)If a risky security is priced correctly,it will have an expected return equal to the risk-free rate.
• D)The risk premium on a risk-free security is generally considered to be one per cent.
• E)If a risky security is correctly priced,its expected risk premium will be positive.

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Definitions:

Deferred Tax Liabilities

Future tax liabilities arising from temporary differences between the book value and the tax basis of assets and liabilities.

Book Income Tax Expense

The amount of income tax expense that is reported in the financial statements, which may differ from actual taxes paid due to timing or differences in accounting and tax rules.

Deferred Tax Assets

Financial items on a company's balance sheet representing taxes paid or carried forward but not yet realized in the income statement.

Earnings Quality

An assessment of the reliability and sustainability of a company's income, indicating the extent to which earnings are derived from core business activities versus non-recurring, unusual transactions.