Which of the Following Best Describes the Two Perspectives of the Financial

question 93

Multiple Choice

Which of the following best describes the two perspectives of the financial reporting process that managers need to understand in investing decisions?

• A)Economic consequences and user orientation.
• B)Corporate governance and user orientation.
• C)User orientation and debt covenants.
• D)Economic consequences and corporate governance.

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Definitions:

Security Market Line

A representation in finance that shows the relationship between risk (as measured by beta) and expected return of investments, used in the capital asset pricing model.

Capital Market Line

A line used in the capital asset pricing model to depict the rates of return for efficient portfolios depending on the risk-free rate of return and the level of risk (standard deviation) for a particular portfolio.

Characteristic Line

In finance, a line that describes the relationship between the return on an investment and the return on the market as a whole, used in the Capital Asset Pricing Model.

Systematic Risk

Systemic risk associated with the overall market or a particular segment of the market, widely known as market risk, remains even after diversification efforts.