Exhibit 1A-7 Straight Line Relationship

question 140

Multiple Choice

Exhibit 1A-7 Straight line relationship

Which of the following would cause a shift in the relationship shown in Exhibit 1A-7?

• A) A rise in people's annual income.
• B) A rise in people's expenditure on air travel.
• C) A rise in the price of air travel.
• D) Nothing will shift the line in the graph.

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Definitions:

Expected Return

The predicted amount of profit or loss an investment generates based on historical or projected performance.

Risk-free Rate

The return on investment of a theoretically risk-less security, often represented by the yield on government bonds.

Risk Premium

The additional return expected by an investor for taking on a higher level of risk, compared to a risk-free investment.

Risky Asset

An investment that holds a significant chance of losing all or part of its value.