The Steeper the Security Market Line

question 157

Multiple Choice

The steeper the Security Market Line,

• A) the lower the risk premium.
• B) the more investors dislike risk.
• C) the less investors are concerned about risk.
• D) the greater the risk-free interest rate.

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Definitions:

Payback Technique

A method of investment appraisal that calculates the time required to recoup the cost of an investment.

Internal Rate of Return

A financial metric used to evaluate the profitability of an investment, representing the interest rate at which the net present value of costs and benefits of the investment are equal.

Net Present Value

A financial metric that calculates the difference between the present value of cash inflows and the present value of cash outflows over a period of time.

Discount Rate

The interest rate used to determine the present value of future cash flows in discounted cash flow analysis.