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The distribution of returns, measured over long intervals, like annual returns, can be approximated by which distribution
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- Which of the following statements is CORRECT? Assume that the firm is a publicly-owned corporation.a. If a firm's managers want to maximize the value of the stock, they should, in theory, concentrate on project risk as measured by the standard deviation of the project's expected future cash flows.b. If a firm evaluates all projects using the same cost of capital, then its risk will probably decline over time.c. Projects with more than average risk typically have higher than average expected returns. Therefore, to maximize a firm's intrinsic value, its managers should favor high beta projects over low beta projects.d. Project A has a standard deviation of expected returns of 20%, while Project B's standard deviation is only 10%. A's returns are negatively correlated with the firm's other assets and with returns on most stocks in the economy, while B's returns are positively correlated. Therefore, Project A is less risky to a firm and should be evaluated with a lower cost of capital.e. If a firm has a beta that is less than 1.0, say 0.9, this would suggest that the expected returns on its assets are negatively correlated with the returns on most other firms' assets.