Which of the following statements is CORRECT? a. Two securities with the same stand-alone risk must have the same betas. b. A st
ock's beta indicates its diversifiable risk. c. Diversifiable risk cannot be completely diversified away. d. Lower beta stocks have higher required returns.
1 answer:
Answer:
E. The slope of the security market line is equal to the market risk premium
Explanation:
Option A is incorrect because the equity beta is different of two securities though it has same risk level this is because the beta equity is affected by the gearing of the firm
Option B is also incorrect because the beta reflects the risk that is un-diversifiable. Always remember that Capital asset pricing model says that the investor are compensated for the risk that is un-diversifiable which is the business systematic risk.
Option C is also incorrect because the diversifiable risk can be diversified completely by investing in stock of companies of more than 40 industries.
Option D is also incorrect because the lower beta shows lower risk level of the investment and higher risk level indicates higher risk levels.
Option E is correct because the slope indicates the risk premium on the investment and the intercept indicates the risk free investment.
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Answer: 204.76%
Explanation:
In the earlier scenario, furniture maker manufactured 47 (42 non defective) pieces per 5 laborers working 8 hours day.
Thus, the productivity in terms of units per labor hour is as follows:
= 1.05
Similarly, after the process improvement, the productivity in units per labor hour would be:
= 3.2
Thus change in productivity would be calculated as:
= 2.047 × 100
= 204.76%
Thus, the productivity of non defective parts would increase by 204.76%.