The security market line depicts: a. Expected return as a function of systematic risk (indicated by beta) b. The market portfolio as the optimal portfolio of risky assets c. The relationship between a security’s return and the return on the index d. Portfolio combinations of the market portfolio and the risk-free asset e. Expected return as a function of volatility

The security market line depicts: a. Expected return as a function of systematic risk (indicated by beta) b. The market portfolio as the optimal portfolio of risky assets c. The relationship between a security’s return and the return on the index d. Portfolio combinations of the market portfolio and the risk-free asset e. Expected return as a function of volatility

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 1QTD

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What is a characteristic line? How is this line used to estimate a stocks beta coefficient? Write out and explain the formula that relates total risk, market risk, and diversifiable risk.
The security market line depicts:a. A security’s expected return as a function of its systematic risk.b. The market portfolio as the optimal portfolio of risky securities.c. The relationship between a security’s return and the return on an index.d. The complete portfolio as a combination of the market portfolio and the risk-free asset.
Which one of the following is the formula that explains the relationship between the expected returnon a security and the level of that security's systematic risk?Select one:a. Time value of money equationb. Unsystematic risk equationc. Expected risk formulad. Market performance equatione. Capital asset pricing model
The measure of risk for a security held in a diversified portfolio is:a. Specific risk.b. Standard deviation of returns.c. Reinvestment risk.d. Covariance.
The slope of the security market line is the: Group of answer choices reward-to-risk ratio portfolio weight beta coefficient risk-free interest rate market risk premium
Beta is which of the following: A) standard deviation. B) total risk. C) Beta is the relationship which is between an investment's return, and the market return. D) unsystematic risk.
Market's Risk premium measures Select one: a. The market return plus the risk free rate. b. The risk free rate and market portfolio rate of return c. The risk free rate plus the risk premium d. The change in the risk free rate and the market return e. The difference between return on market portfolio and risk-free rate
The security market line describes the expected return for O The efficient portfolio O The inefficient portfolio O All portfolios and assets O The efficient and inefficient portfolios
Which is least likely correct about security valuation?a. The calculated or determined value considers the stream of future cash flows.b. The calculated or determined value equals the market price.c. The calculated or determined value considers the risks involved and the opportunity cost.d. The calculated or determined value allows the investors to evaluate whether a security isovervalued or undervalued.e. All of the above
A plot/graph of the positive relation between systematic risk and expected return is called: O security market line standard deviation and width of the normal distribution O covariance graph O capital asset pricing model
Plot the Security Market Line (SML) b) Superimpose the CAPM’s required return on the SML c) Indicate which investments will plot on, above and below the SML? d) If an investment’s expected return (mean return) does not plot on the SML, what doesit show? Identify undervalued/overvalued investments from the graph (
The risk associated with the overall market is referred to as _____ risk. a. unsystematic b. diversified c. portfolio d. systematic

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	a.	Expected return as a function of systematic risk (indicated by beta)
	b.	The market portfolio as the optimal portfolio of risky assets
	c.	The relationship between a security’s return and the return on the index
	d.	Portfolio combinations of the market portfolio and the risk-free asset
	e.	Expected return as a function of volatility