The Security Market Line Is Defined as a Positively Sloped

question 5

Multiple Choice

The security market line is defined as a positively sloped straight line that displays the relationship between the:

• A)beta and standard deviation of a portfolio.
• B)systematic and unsystematic risks of a security.
• C)nominal and real rates of return.
• D)expected return and beta of either a security or a portfolio.
• E)risk premium and beta of a portfolio.

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Definitions:

Interest Rates

The cost of borrowing money, expressed as a percentage of the amount borrowed, charged by lenders to borrowers for the use of their money.

Optimal Choice

The most efficient and effective decision or selection made from among various alternatives, based on the criteria of maximizing utility or benefit.

Budget Constraint

The restriction on the assortment of goods and services a consumer is able to purchase, determined by their income and the costs of those items.

Interest Rate on Savings

The percentage yield paid by financial institutions to deposit account holders on the balances in their savings accounts.