The Security Market Line Approach

question 174

Multiple Choice

The security market line approach:

• A) Provides an actual cost of equity because the risk level of the firm is known with certainty.
• B) Provides an actual cost of equity because the market risk premium is constant over time and across assets.
• C) Relies on the past as a predictor of the future.
• D) Is less applicable to business firms than the dividend growth model.
• E) Considers the projected growth rate of the firm.

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Definitions:

Line Current

The current that flows through the conductors of an electrical distribution system or in any single conductor.

Inductance

A characteristic of an electrical conductor wherein an alteration in the current passing through it generates an electromotive force within the conductor and in nearby conductors due to mutual inductance.

Three-Phase Wye Connection

A three-phase Wye connection is a method of connecting three-phase electrical circuits where the endpoints of each phase are connected at a common point, forming a shape similar to the letter 'Y'.

Virtue

The quality of being morally good or righteous, often associated with conforming to ethical principles and standards of behavior.