Which of the Following Statements Is CORRECT

question 53

Multiple Choice

Which of the following statements is CORRECT?

• A) 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.
• B) The CAPM has been thoroughly tested,and the theory has been confirmed beyond any reasonable doubt.
• C) 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.
• D) 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.
• E) 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.

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Definitions:

Nixon's Visit

Nixon's Visit refers to President Richard Nixon's historic trip to China in 1972, a pivotal moment in U.S.-China relations that marked the beginning of normalization between the two countries after years of estrangement.

China

A country in East Asia, the world's most populous nation, known for its rich history, culture, and as a major global economic power.

UN

The United Nations, an international organization founded in 1945, aimed at promoting peace, security, and cooperation among the world's countries.

Camp David Accords

Peace agreement between the leaders of Israel and Egypt, brokered by President Jimmy Carter in 1978.