A Share with an Actual Return That Lies Above the Security

question 111

Multiple Choice

A share with an actual return that lies above the security market line:

• A)has more systematic risk than the overall market.
• B)has more risk than warranted based on the realized rate of return.
• C)has yielded a higher return than expected for the level of risk assumed.
• D)has less systematic risk than the overall market.
• E)has yielded a return equivalent to the level of risk assumed.

---

Definitions:

Cumulative Preferred Stock

A type of preferred stock where dividends accumulate if not paid, with all past unpaid dividends required to be paid out before any dividends can go to common stockholders.

Common Stock

Equity securities that represent ownership shares in a corporation, giving holders voting rights and potential dividends but with no fixed dividend rate.

Dividend

A portion of a company's earnings that is paid to shareholders, typically on a quarterly basis, as a reward for investing in the company.

Convertible Preferred Stock

A type of preferred stock that gives holders the option to convert their preferred shares into a fixed number of common shares, generally after a predetermined date.