Which of the following statements is correct?
A)When company-specific risk has been diversified away, the inherent risk that remains is market risk, which is constant for all stocks in the market.
B)Portfolio diversification reduces the variability of returns on an individual stock.
C)Risk refers to the chance that some unfavourable event will occur, and a probability distribution is completely described by a listing of the likelihoods of unfavourable events.
D)The SML relates a stock's 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.

Question

Quizplus · Accepted Answer

The Security Market Line (SML) represents the relationship between the expected return of a stock and its market risk (beta). While managers cannot change the slope or intercept of the SML, they can influence their firm's position on it by altering the firm's risk profile.

Which of the Following Statements Is Correct