Which of the following statements is correct?
A. Well-diversified stockholders do not consider a firm's corporate risk when establishing their required rates of return.
B. Undiversified stockholders, including the owners of small businesses, probably are more concerned about the corporate risk associated with a particular firm than are diversified stockholders.
C. Empirical studies to determine the factors that affect required rates of return (r) have concluded that only market risk affects stock prices; i.e., neither corporate risk nor stand-alone risk has any impact on required rates of return.
D. A firm's market risk is important, but it does not directly affect stock prices because it only affects the firm's beta.
E. A firm's market risk is not an important factor in determining its required rate of return.
Answer: B
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In the United States v. O'Hagan case referenced in the text, O'Hagan was a partner in the law firm of Dorsey & Whitney who represented Grand Met. Grand Met revealed to O'Hagan that Grand Met intended to make a tender offer to Pillsbury. Based on this confidential material information form his client O'Hagan purchased stock and options in Pillsbury prior to a public announcement of Grand Met's
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A. time compression diseconomies. B. path dependence. C. resource homogeneity. D. causal ambiguity.
Which of the following is a specific assumption of Theory Z managers?
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