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:

Negotiations

The process of discussion aimed at reaching an agreement or compromise between two or more parties.

Offeree's Silence

A legal concept where the silence of the party to whom an offer is made does not generally constitute acceptance of the offer.

Acceptance

The act of agreeing to the terms of an offer, thus completing the process of making a contract binding.

Negotiations

The process of discussing terms andconditions in order to reach a mutual agreement or compromise.