5. Which of the following statements is CORRECT? (0.5) A. B. C. but managers can

Question

5. Which of the following statements is CORRECT? (0.5) A. B. C. but managers can influence the ir firms positions on D. Portfolio diversification reduces the variabili ty of returns on an individual stock. When diversifiable risk has been diversified away, the inherent risk that remains is marketrisk, which is constant for all stocks in the market The SML relates a stock's required ret turn to its marketrisk. The slope and intercept of this line cannot be controlled by the firms managers the line by such actions as changing the firm's capital structure or the type of assetsit employs. A stock with a beta of 1.0 has zero market risk if held in a 1-stock portfolio.

Explanation / Answer

A is False, portfolio diversification reduces the variability of returns of the PORTFOLIO and NOT on individual stocks.

B is False as inherent risk is different for different stocks.

D is incorrect as the stock with Beta 0 will have zero market risk. Stock with Beta 1 will have risk similar to whole market.

C is the correct answer.

Related Questions

Navigate

• Browse (All)
• Browse 5
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.