QUESTION 13

1. Which of the following statements is most 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 market risk.
   		e. The SML relates required returns to firms' market risk. The slope and intercept of this line cannot be controlled by the financial manager.