For a Portfolio with Superior Performance, Its Characteristic Line Will

question 20

Multiple Choice

For a portfolio with superior performance, its characteristic line will

• A) have a more positive slope than the SML.
• B) be flat.
• C) intercept the SML at the average market return.
• D) lie below the SML.

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Definitions:

Compound Interest

This concept involves calculating interest on the original investment or loan amount, in addition to the interest that has compounded from past periods.

Cash Payback Period

The duration required for an investment to generate cash flows sufficient to recover the initial outlay, measuring the investment's liquidity or risk.

Annual Net Cash Flows

The amount of cash that a company generates or loses over a year after accounting for all cash inflows and outflows.

Cash Payback Period

The time duration required to recover the initial investment cost through the cash flows generated by the investment.