The Security Market Line (SML) Shows How the Average Expected

question 280

Multiple Choice

The Security Market line (SML) shows how the average expected rates of return on assets vary with

• A) stock price.
• B) dividend payment.
• C) risk level.
• D) time preference.

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Definitions:

Present Value

The current value of a future sum of money or stream of cash flows given a specified rate of return, commonly used to appraise long-term projects.

Discount Rate

The interest rate used to determine the present value of future cash flows in discounted cash flow analysis. It reflects the opportunity cost of capital.

Present Value

The value at present of future cash receipts or a lump sum, taking into consideration a specified rate of return.

Future Value

The value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today, taking into account interest or return on investment.