Question

Which of the following statement is not true? (extra credit)

a.              Any change in its beta is likely to affect the required rate of return on a stock, which implies that a change in beta will likely have an impact on the stock's price, other things held constant.

b.              The slope of the SML is determined by investors' aversion to risk. The greater the average investor's risk aversion, the steeper the SML.           

c.              A firm can change its beta through managerial decisions, including capital budgeting and capital structure decisions.

d.              Bad managerial judgments or unforeseen negative events that happen to a firm are defined as "company-specific," or "unsystematic," events, and their effects on investment risk can in theory be diversified away.

e.              The tighter the probability distribution of its expected future returns, the greater the risk of a given investment as measured by its standard deviation.

Answer 1

The tighter the probability distribution of its expected future returns, the greater the risk of a given investment as measured by its standard deviation.

This statement is incorrect

If probability distribution of expected return is tighter in normal distribution curve, then standard deviation will be low so the total risk will be low.