Question: Portfolio provides average return but much lower risk. The key is the negative correlations among individual stocks. Both market risk and firm-specific risk can be

Portfolio provides average return but much lower risk. The key is the negative correlations among individual stocks. Both market risk and firm-specific risk can be eliminated by portfolio diversification.

True.

False.

Any changes in risk aversion of investors are likely to affect the market risk premium, which implies that the changes in risk aversion will likely have an impact on the firms stock price.

True

False

Which of the following statements about corporate governance is NOT true?

Common stock represents the ownership of a company, which implies control of the firm.

Stockholders elect the board of directors of the firms in which they own shares.

Board of directors is responsible of hiring, firing, and compensating top management (e.g., CEO) of the firm.

Managers are agents of shareholders, but the board of directors are not.

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