A Particular Asset Has a Beta of 1

question 21

Multiple Choice

A particular asset has a beta of 1.2 and an expected return of 10%.The expected return on the market portfolio is 13% and the risk-free is 5%.Which of the following statement is correct?

• A) This asset lies on the security market line.
• B) This asset lies above the security market line.
• C) This asset lies below the security market line.
• D) Cannot tell from the given information.

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Definitions:

Novation

A legal process by which an existing contract or obligation is replaced with a new one, releasing a party from the original agreement.

Model Business Corporation Act

A model set of laws prepared by legal experts to guide states in developing their corporate statutes.

Preincorporation Subscription

An agreement by an individual to purchase shares in a corporation that has yet to be formed.

Six-Month

Relating to or denoting a period or term of six months, often used in the context of time-specific agreements or conditions.