What Would You Recommend to an Investor Who Is Considering

question 16

Multiple Choice

What would you recommend to an investor who is considering an investment that plots below the security market line?

• A) Invest; The expected return is high relative to the risk.
• B) Don't invest; The risk is high relative to the expected return.
• C) Invest; All stocks revert to the SML over time.
• D) Don't invest; All stocks below the SML are low-growth stocks.

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Definitions:

Title

The legal right to own, possess, or use property.

Consequential Damages

Compensation for losses that do not directly flow from an act but result indirectly from it.

Liability

The state of being legally responsible for something, particularly in the context of debts or legal judgments.

Contract

A legal commitment made between two or more participants that is upheld by law.