The security market line (SML) relates risk to return, for a given set of market
ID: 2771515 • Letter: T
Question
The security market line (SML) relates risk to return, for a given set of market conditions. If risk aversion increases, which of the following would most likely occur? A) The market risk premium would increase. B) Beta would increase. C) The slope of the SML would increase. D) The SML line would shift up.
Investment risk is:
A) the probability of achieving a return that is greater than what was expected.
B) the probability of achieving a beta coefficient that is less than what was expected.
C) the probability of achieving a return that is less than what was expected.
D) the probability of achieving a standard deviation that is less than what was expected.
What type of risk can investors reduce through diversification?
A) All risk
B) Systematic risk only
C) Unsystematic risk only
D) Uncertainty
Common indenture provisions include:
A) restrictions on the issuance of common stock dividends.
B) restrictions on the sale or purchase of fixed assets.
C) constraints on additional borrowing.
D) all of the above.
Explanation / Answer
Answers are as follows
1. a)The market risk premium would increase
2. C) the probability of achieving a return that is less than what was expected.
3. C) Unsystematic risk only
4. D) all of the above