A System Is Composed of Three Components in Series Having

question 92

Multiple Choice

A system is composed of three components in series having reliabilities of 0.99, 0.95, and 0.90. What is the overall system reliability?

• A) 0.95
• B) 0.90
• C) 0.85
• D) 0.80
• E) 0.75

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Definitions:

SML

The Security Market Line, a graphical representation of the Capital Asset Pricing Model (CAPM) showing the relationship between the expected return of a security and its risk.

CML

The Capital Market Line, representing the risk-return trade-off of efficient portfolios in the capital market theory; it shows the highest return possible for any given level of risk.

Well-Diversified Portfolios

Investment portfolios that contain a wide variety of assets to minimize exposure to any single asset or risk.

Relative Systematic Risk

The risk inherent to the entire market or market segment, which can be compared relative to other stocks or securities within the same market.