You Are Given Three Investments with the Same Level of Risk

question 20

Multiple Choice

You are given three investments with the same level of risk. Two of the investments have relatively the same level of return. The third investment has a return that is relatively higher than the other two investments. Assuming that the two investments with the same level of return lie on the SML, how would you classify the third investment?

• A) ``Over-sold``, investors rush to buy it
• B) ``Over-bought``, investors rush to sell it
• C) ``Over-sold``, investors rush to sell it
• D) ``Over-bought``, investors rush to buy it

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Definitions:

Profit-Sharing Plan

A company program that offers employees a share in the profits of the business, typically as a form of incentive or bonus.

Merit Pay Plan

A compensation strategy where employees are paid based on their performance or achievements, often intended to motivate and reward excellence.

Gain-Sharing Plan

A compensation strategy where employees receive financial benefits from improvements in the company's performance, encouraging productivity and team effort.

Skill-Based Pay

A compensation system that determines salaries based on the skills or knowledge an employee possesses, rather than their job position or title.