Which of the following statements is CORRECT?Answer a.Diversifiable ri

QUESTION

Which of the following statements is CORRECT?Answer a.Diversifiable risk cannot be completely diversified away.b.Lower beta stocks have higher required returns.c.A stocks beta indicates its diversifiable risk.d.Two securities with the same stand-alone risk must have the same betas.e.The slope of th
9. e. The slope of the security market line is equal to the market risk premium 10. d.The SML relates a stocks required return to its market risk. The slope and intercept of this line cannot be controlled by the firms managers, but managers can influence their firms positions on the line by such actions as changing the firms capital structure or the type of assets it employs. 11. a)If the risk-free rate remains unchanged but the market risk premium increases by 2%, your portfolios required return will increase by more than 2%. if we calculate the

io expected return, we are getting 11.4%.If there is 2% increase in market risk premium and the risk free rate remains unchanged, then the portfolio return is 13.56%. Therefore, the percentage change in the portfolio expected return is 19% which is more than 2%. 12. e) 7.9% Calculating the expected rate of return: E(R) = 0.50 * 0.21 0.30 * 0.10 0.20 * (-0.28) = 0.079 or 7.9%

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