The Security Market Line (SML) Is Upward-Sloping, Indicating That the

question 76

Multiple Choice

The Security Market Line (SML) is upward-sloping, indicating that the

• A) beta of an investment increases as its risk level increases.
• B) average expected return on investments decreases as their risk level decreases.
• C) average expected return on the risk-free asset increases as its beta increases.
• D) average expected return of the market portfolio increases as its beta increases.

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Definitions:

Incremental Cost Approach

The incremental cost approach involves evaluating the additional costs and benefits associated with making one decision over another, used to make economically sound choices.

Payback Period

The length of time required for an investment to recover its initial cost out of the cash receipts that it generates.

Required Rate of Return

The minimum annual percentage earned by an investment that will entice individuals or companies to put money into a particular security or project.

Net Income

The profit or loss of a company after all expenses, taxes, and costs have been subtracted from total revenue.