The Intercept Point of the Security Market Line Is the Rate

question 94

Multiple Choice

The intercept point of the security market line is the rate of return which corresponds to:

• A) the risk-free rate.
• B) the market rate.
• C) a return of zero.
• D) a return of 1.0 percent.
• E) the market risk premium.

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Definitions:

Residual Standard Deviation

A measure of the amount of variance in a dataset not explained by the predictive variables, often used in regression analysis.

Total Abnormal Return

The sum of the differences between the expected return on a security, based on a model like the CAPM, and the actual return over a specific period.

Bogey Portfolio

A benchmark portfolio against which the performance of an investment portfolio can be measured.

Bonds

Financial instruments representing loans made by an investor to a borrower, typically corporate or governmental, which are expected to be paid back with interest.