Hern MacTavish Only Invests in Lending Investments

question 89

Multiple Choice

Hern MacTavish only invests in lending investments. If his financial advisor gave him the list below, which might Hern invest in?

• A) saving accounts
• B) stocks
• C) income-producing real estate
• D) bonds
• E) both A and D

Analyze how changes in risk aversion impact the security market line (SML) and stock prices.

Understand the concept of arbitrage and its role in ensuring market efficiency.

Explain the significance of alpha in evaluating a security's performance relative to CAPM predictions.

Comprehend the role of diversification in managing unsystematic risk in a portfolio.

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Definitions:

Tastes

The perceived preferences or desires of consumers or individuals, often influencing their behavior and choices.

Exchange Rates

The value of one currency expressed in terms of another currency, used to determine how much of one currency you can exchange for another.

Trade Deficits

A situation in which a country's imports exceed its exports, resulting in a negative balance of trade.

Speculation

The act of investing in financial assets with the hope of profiting from future price changes, often involving significant risk.