The Security Market Line Is Defined as a Positively Sloped

question 98

Multiple Choice

The security market line is defined as a positively sloped straight line that displays the relationship between which two of the following variables?

• A)Beta and standard deviation
• B)Systematic and unsystematic risk
• C)Nominal and real returns
• D)Expected return and beta
• E)Risk premium and beta

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Definitions:

Discount Rate

The interest rate used to discount future cash flows to their present value, often used in capital budgeting and investment planning.

Lease Payments

Regular payments made by a lessee to a lessor for the use of an asset for a specific period of time.

Profitability Index

A financial ratio that measures the return on investment for a project by dividing the present value of future cash flows by the initial investment.

Invested Sum

The total amount of money allocated towards an investment or project.