Asset A, Which Has an Expected Return of 12% and a Beta

question 191

Multiple Choice

Asset A, which has an expected return of 12% and a beta of 0.8, plots on the security market line. Which of the following is false about Asset B, another risky asset with a beta of 1.4?

• A) If the market is in equilibrium, Asset B also plots on the SML.
• B) If Asset B plots on the SML, then Asset B and Asset A have the same reward to risk ratio.
• C) Asset B has more systematic risk than both Asset A and the market portfolio.
• D) If Asset B plots on the SML with an expected return = 18%, then the risk-free rate must be 4%.
• E) If Asset B plots on the SML with an expected return = 18%, the expected return on the market must be 15%.

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Definitions:

Consumer Goods

Products that are sold directly to consumers for their personal or household use.

Sales Taxes

Levies that are imposed on the sale of goods and services, which are typically calculated as a percentage of the retail sales price.

Deadweight Loss

The decline in economic performance when a good or service fails to achieve or is unable to achieve its market equilibrium.

Supply Shifts

Changes in the quantity of a good or service that producers are willing and able to sell at all prices, due to factors like technological advancements or changes in resource costs.