If an Asset Has a Risk-Return Combination That Is Below

question 50

Multiple Choice

If an asset has a risk-return combination that is below the Security Market Line (SML) , then this indicates that the asset's

• A) expected rate of return is lower than could be had from some combination of the risk-free asset and the market portfolio.
• B) expected rate of return is higher than could be had from some combination of the risk-free asset and the market portfolio.
• C) price will rise as arbitrage proceeds in the market.
• D) risk will rise as arbitrage proceeds in the market.

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Definitions:

Financial Statements

Formal records of the financial activities and position of a business, person, or other entity, presented in a structured manner to allow easy understanding of financial performance.

Accounting Principle

Guiding rules and standards that form the basis of financial accounting practices, ensuring consistency, reliability, and comparability of financial statements.

Canadian Dollars

The official currency of Canada, used in financial transactions within the country.

Ethics

A set of moral principles that govern the behavior of individuals and organizations.