The Intercept of the Security Market Line Is

question 54

Multiple Choice

The intercept of the security market line is:

• A) E(R_m) - R_f
• B) 1/(E(R_m) - R_f)
• C) R_f - E(R_m)
• D) R_f

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Definitions:

Uncovered Interest Rate Parity

A theory suggesting that the difference between the interest rates of two countries will equal the expected change in exchange rates between the countries' currencies, without the protection of forward contracts.

Spot Rate

The current price or rate for immediate settlement of a commodity, security, or currency exchange.

Initial Cost

The upfront expenditure associated with the purchase or investment in an asset or project.

Exchange Rates

Exchange rates are the value of one currency for the purpose of conversion to another, influencing international trade and investments.