Exhibit 3-1 -Consider the Market Described by the Schedule in Exhibit 3-1

question 13

Multiple Choice

Exhibit 3-1
-Consider the market described by the schedule in Exhibit 3-1. Which of the following is true?

• A)The law of supply is violated.
• B)There is no equilibrium.
• C)At $5 per unit, people will purchase 100 units.
• D)At $2 per unit, people will purchase 700 units.
• E)The law of demand is violated.

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Definitions:

SML

Security Market Line, a graphical representation of the Capital Asset Pricing Model (CAPM) showing the relationship between the expected return of a security and its risk.

CAPM

Short for Capital Asset Pricing Model, a financial model that describes the relationship between systematic risk and expected return for assets.

Required Rates of Return

The minimum annual percentage earnings needed from an investment to compensate for its risk, serving as a benchmark for evaluating potential investments.

Standard Deviations

A statistical measure of the dispersion or variability of a set of data points or investment returns from their average value.