Use the Figure for the Question Below

question 1

Multiple Choice

Use the figure for the question below.
-This graph depicts the payoffs of a ________.

• A) short position in a put option at expiration
• B) short position in a call option at expiration
• C) long position in a put option at expiration
• D) long position in a call option at expiration

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Definitions:

Security Market Line

A line in the Capital Asset Pricing Model (CAPM) that represents the relationship between the expected return of a security and its systemic risk.

Systematic Risk

The risk inherent to the entire market or an entire market segment, influenced by factors such as economic, geopolitical, and financial events, which cannot be eliminated through diversification.

Expected Return

The anticipated return on an investment, factoring in the probability of various outcomes.

Security Market Line

A line that represents the relationship between the risk of investing in a security and its expected return, as per the Capital Asset Pricing Model.