The Term Structure of Risk-Free Canadian Interest Rates Provides the Yield

question 12

Multiple Choice

The term structure of risk-free Canadian interest rates provides the yield curve that can be used to compute

• A) present value of a risk-free cash flow over different investment horizons.
• B) future value of a risk-free cash flow over different investment horizons.
• C) both present and future values of a risk-free cash flow over different investment horizons.
• D) none of the above.

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Definitions:

Security-market Line

A graphical representation that shows the expected rate of return of an investment as a function of its beta, or systematic risk, relative to the market as a whole.

Capital-market Line

A line in the capital market theory that depicts the risk-return trade-off for efficient portfolios, showing that higher risk leads to higher expected return.

Market Expected Rate

The rate of return that investors anticipate from an investment, taking into account all known risks and future expectations.

Capital Allocation

The process of distributing financial resources among various projects or investments to achieve strategic goals and maximize returns.