If an Asset Has a Risk-Return Combination That Is Below

question 50

Multiple Choice

If an asset has a risk-return combination that is below the Security Market Line (SML) , then this indicates that the asset's

• A) expected rate of return is lower than could be had from some combination of the risk-free asset and the market portfolio.
• B) expected rate of return is higher than could be had from some combination of the risk-free asset and the market portfolio.
• C) price will rise as arbitrage proceeds in the market.
• D) risk will rise as arbitrage proceeds in the market.

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Definitions:

Functional Group

Defined conglomerates of atoms inside molecules that are pivotal for the molecules’ typical chemical processes.

Structural Element

A component of a compound's molecular structure that contributes to its overall shape, properties, or function.

Charge Separation

The process by which electric charge is distributed over two or more atoms or molecules, leading to the formation of ions or polarized compounds.

C-O Bond

Refers to the covalent bond between a carbon atom and an oxygen atom, fundamental to organic chemistry.