The Security Market Line (SML)

question 42

Multiple Choice

The security market line (SML)

• A)can be portrayed graphically as the expected return-beta relationship.
• B)can be portrayed graphically as the expected return-standard deviation of market-returns relationship.
• C)provides a benchmark for evaluation of investment performance.
• D)can be portrayed graphically as the expected return-beta relationship and provides a benchmark for evaluation of investment performance.

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Definitions:

MIRR

Modified Internal Rate of Return, a financial measure used to evaluate the profitability of investments, adjusting for differences in cash flow timing and reinvestment rates.

Cost of Capital

The rate of return that a company needs to earn on its investment projects to maintain its market value and satisfy its investors and creditors.

Internal Rate of Return

The discount rate at which the net present value of all the cash flows (both positive and negative) from a project or investment equals zero.

Multiple IRRs

The situation where a project has more than one internal rate of return, occurring due to unconventional cash flows.