CFA® Level 1: CFA® Level 1 Exam - Answer Explanation

CFA® Level 1 Exam

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Question

Which of the following statements is correct?

Answers

A. Market risk is important but does not have a direct effect on stock price because it only affects beta.

B. Well diversified stockholders do not consider corporate risk when determining required rates of return.

C. Undiversified stockholders, including the owners of small businesses, are more concerned about corporate risk than market risk.

D. Empirical studies of the determinants of required rates of return (k) have found that only market risk affects stock prices. C

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Explanations

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A. B. C. D.

Explanation

Corporate risk is the project's risk to the corporation giving consideration to the fact that the project represents only one of the firm's portfolio of assets, hence that some of its risk effects on the firm's profits will be diversified away.

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