Which of the following statements is correct?
A) Risk refers to the chance that some unfavorable event will occur,and a probability distribution is completely described by a listing of the likelihood of unfavorable events.
B) Portfolio diversification reduces the variability of returns on an individual stock.
C) When company specific risk has been diversified,the inherent risk that remains is market risk which is constant for all securities in the market.
D) A stock with a beta of −1.0 has zero systematic (or market)risk.
E) The SML relates required returns to firms' systematic (or market)risk.The slope and intercept of this line cannot be controlled by the financial manager.

Question

Quizplus · Accepted Answer

The SML (Security Market Line) represents the relationship between the expected return of a security and its systematic risk, measured by beta. The slope and intercept are determined by market conditions and investor expectations, not by financial managers.

Which of the Following Statements Is Correct