Which of the Following Is the Best Definition of Security

question 411

Multiple Choice

Which of the following is the best definition of security market line (SML) ?

• A) A theory showing that the expected return on any risky asset is a linear combination of various factors.
• B) A risk that affects at most a small number of assets. Also called unique or asset-specific risks.
• C) A risk that influences a large number of assets. Also called market risk.
• D) Positively sloped straight line displaying the relationship between expected return and beta.
• E) Principle stating that spreading an investment across a number of assets eliminates some, but not all, of the risk.

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Definitions:

Straight-Line Method

A method of calculating depreciation by evenly allocating the cost of an asset over its useful life.

Discount Amortized

Discount amortized refers to the gradual reduction or write-off of the discount on bonds payable over the life of the bond, thus increasing the bond's carrying value on the balance sheet over time.

Interest Payable

The amount of interest that a borrower owes to a lender at a specific point in time but has not yet paid.

Contract Rate

The interest rate specified in a contract, such as a loan agreement or bond indenture.