What Would You Recommend to an Investor Who Is Considering

question 55

Multiple Choice

What would you recommend to an investor who is considering an investment that, according to its Beta, plots below the security market line (SML) ?

• A)invest; return is high relative to risk
• B)don't invest; risk is high relative to return
• C)invest; stocks revert to the SML over time
• D)don't invest; stocks below the SML have too much unique risk

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Definitions:

Current Ratio

A financial metric that measures a company's ability to pay off its short-term liabilities with its short-term assets.

Current Assets

Assets that are expected to be converted into cash, sold, or consumed within one year or within the business's normal operating cycle if longer than a year.

Short-term Note

A financial instrument typically due for repayment within one year, often used for short-term financing needs.

Long-term Debt

Refers to loans or other forms of financial obligations that are due for repayment beyond the next year or operating cycle.