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:

Predatory

Relating to an organism that hunts and kills other organisms for food, characterized by adaptations that facilitate hunting and capturing prey.

Predator

An animal that naturally preys on others for food.

Parasite

An organism that lives on or in a host organism and gets its food from or at the expense of its host.

Host

An organism that harbors another organism (parasite, mutualistic symbiont, or commensal) often providing nourishment and shelter.