A Stock with an Actual Return That Lies Above the Security

question 6

Multiple Choice

A stock 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.

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Definitions:

Futures Price

The agreed-upon price for a financial instrument or commodity to be delivered and paid for at a future date.

Spot Price

The current market price at which an asset can be bought or sold for immediate delivery.

Profit

The financial gain achieved when the amount earned from a business activity exceeds the expenses, costs, and taxes needed to sustain the activity.

Futures Contracts

Standardized legal agreements to buy or sell something at a predetermined future date and price, often used for hedging or speculation purposes.