Which of the following statements is CORRECT?Multiple ChoiceCompany-specific risk can be diversified awayLower beta stocks have higher required returnsTwo securities with the same beta will have the same priceA stock's beta indicates its company-specific risk

The unsystematic risk is the company specific risk, the systematic risk is the vulnerability related…

Answered: Which of the following statements is…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 12QTD

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The additional return over the risk-free rate needed to compensate investors for assuming an average amount of risk. a. Market Risk Premium b. Risk-free rate С. Stock's beta O d. Security Market Line e. Required Return on Stock
Which of the following statements is CORRECT? a. Lower beta stocks have higher required returns. b. A stock's beta indicates its diversifiable risk. c. Diversifiable risk cannot be completely diversified away. d. Two securities with the same stand-alone risk must have the same betas. e. The slope of the security market line is equal to the market risk premium.
Which of the following is true? a. Beta of a stock cannot be negative b. SML is an acronym for Stock Market Line c. Holding multiple stocks from the same industry is meaningful diversification d. Undiversifiable risk is known as the systematic risk
A stock's standard deviation determines how the stock affects the riskiness of a diversified portfolio; therefore, it is a better measure of a stock's relevant risk than is the beta-coefficient, which measures total, or stand-alone, risk.Choices:a. TRUEb. FALSE
What does the capital asset pricing model (CAPM) calculate? a. The expected rate of return on an individual stock with respect to the risk-free rate of return b. The expected rate of return of an individual stock based on its overall risk c. The expected rate of return of an individual stock with respect to its market risk only d. The expected rate of return of an individual stock reflecting its financial risk Clear my choice
1. Beta is positively related A. the degree of correlation between a stock's return and the market return B. the systematic risk of a stock C. risk premium required by the stock D. all of the above
Beta measures a stock's sensitivity to market risks True b. False a. [Answer C] [Answer D]
According to the capital asset pricing model (CAPM), fairly priced securities should have __________. Select one: a. A fair return based on the level of systematic risk. b. A beta of 1. c. A return equal to the market return. d. A fair return based on the level of unsystematic risk.
The SML shows the return needed given risk as measured by beta. And there are situations where a stock might be mispriced relative to CAPM. Given the relationship with the security mark line (SML), if a stock is properly priced relative to CAPM , where would it plot on the graph relative to the SML? A. on the Y-axis B. on the security market line C. below the security market line D. above the security market line
Market equity beta measures the covariability of a firms returns with all shares traded on the market (in excess of the risk-free interest rate). We refer to the degree of covariability as systematic risk. The market prices securities so that the expected returns should compensate the investor for the systematic risk of a particular stock. Stocks carrying a market equity beta of 1.20 should generate a higher return than stocks carrying a market equity beta of 0.90. Nonsystematic risk is any source of risk that does not affect the covariability of a firms returns with the market. Some writers refer to nonsystematic risk as firm-specific risk. Why is the characterization of nonsystematic risk as firm-specific risk a misnomer?
What is a characteristic line? How is this line used to estimate a stocks beta coefficient? Write out and explain the formula that relates total risk, market risk, and diversifiable risk.
What should be the risk premium and return on a stock with a Beta of zerounder the Capital Asset Pricing Model (CAPM)? What about the risk premiumand return on a stock with a Beta of 1?

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Which of the following statements is CORRECT? Multiple Choice Company-specific risk can be diversified away Lower beta stocks have higher required returns Two securities with the same beta will have the same price A stock's beta indicates its company-specific risk