If the Firm Is Being Operated So as to Maximize

question 2

Multiple Choice

If the firm is being operated so as to maximize shareholder wealth,and if our basic assumptions concerning the relationship between risk and return are true,then which of the following should be true?

• A)If an asset's beta is larger than the firm's beta, then the required return on the asset is less than the required return on the firm.
• B)If the beta of the asset is smaller than the firm's beta, then the required return on the asset is greater than the required return on the firm.
• C)If the beta of the asset is greater than the firm's beta prior to the addition of that asset, then the firm's beta after the purchase of the asset will be smaller than the original firm's beta.
• D)If the beta of an asset is larger than the firm's beta prior to the addition of that asset, then the required return on the firm will be greater after the purchase of that asset than prior to its purchase.
• E)None of the statements is true.

---

Definitions:

Resistance

In psychology, an individual's subconscious defense mechanisms that prevent certain thoughts or feelings from entering awareness.

Progressive Relaxation

A technique used to reduce stress and anxiety by tensing and then relaxing each muscle group in the body progressively.

Counterconditioning

A behavior therapy technique where an unwanted response to a stimulus is replaced with a desired response.

Unconditional Positive Regard

In psychology, an attitude of total acceptance and support towards another person regardless of what they say or do, often used within therapeutic settings.