Using the Security Market Line Concept in Capital Budgeting, Which

question 68

Multiple Choice

Using the Security Market Line concept in capital budgeting, which of the following is correct?

• A)If the expected rate of return on a given capital project lies above the SML, the project should be accepted even if its beta is above the beta of the firm's average project.
• B)If a project's return lies below the SML, it should be rejected if it has a beta greater than the firm's existing beta but accepted if its beta is below the firm's beta.
• C)If two mutually exclusive projects' expected returns are both above the SML, the project with the lower risk should be accepted.
• D)If a project's expected rate of return is greater than the expected rate of return on an average project, it should be accepted.

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Definitions:

Net Exports

The value of a country's total exports minus the value of its total imports; it is a component of a country's gross domestic product (GDP).

Real Values

Economic measures that have been adjusted for inflation, allowing for comparisons over time by reflecting the actual purchasing power.

Nominal Terms

Values or prices expressed in current money terms, without adjusting for inflation or price level changes.

Macroeconomic Variables

Indicators or main aggregates considered in the analysis of an economy's overall performance, such as GDP, inflation, and unemployment rates.