Which of the Following Statements Is CORRECT

question 9

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:

Ownership

The legal right to possess, use, and dispose of something; often refers to the possession of assets.

Retailer

A business or entity that sells goods or commodities directly to consumers, usually in small quantities and from a fixed location, storefront, or online platform.

Ultimate Consumer

The final purchaser of a product or service who does not intend to resell it but uses it for personal use or consumption.

Distributor

An entity that buys non-competing products or product lines, warehouses them, and resells them to retailers or direct to the end users or customers.