What Are the Three Common Elements of an Optimization Problem

question 44

Multiple Choice

What are the three common elements of an optimization problem?

• A) objectives, resources, goals.
• B) decisions, constraints, an objective.
• C) decision variables, profit levels, costs.
• D) decisions, resource requirements, a profit function.

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Definitions:

Probability Distribution

A listing, chart, or graph of all possible outcomes, such as expected rates of return, with a probability assigned to each outcome.

Security Market Line

A graphical representation that shows the expected rate of return of an asset as a function of its systematic risk.

Inherent Risk

The possibility of inaccurate financial statements due to factors other than failure of control, covering areas such as industry characteristics and overall economic environment.

SML

The Security Market Line, a graphical representation of the Capital Asset Pricing Model showing the relationship between the expected return of a security and its beta (systematic risk).