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:

Overconfidence

A cognitive bias where an individual's belief in their own abilities or the accuracy of their forecasts exceeds reality.

Moving Averages

A technique used in technical analysis that smooths out price data by creating a constantly updated average price over a specific period of time.

Market Price

The market price is the current price at which an asset or service can be bought or sold in a marketplace, subject to the forces of supply and demand.

Mental Accounting

Individuals mentally segregate assets into independent accounts rather than viewing them as part of a unified portfolio.