A Best Fit Security Market Line Relating Implied Returns to Beta

question 20

Multiple Choice

A best fit Security Market Line relating implied returns to Beta is 6% + 8% (Beta) . This line implies that for a stock with Beta of 1.5, the riskfree rate is

• A) 6%.
• B) 12%.
• C) 8%.
• D) 18%.

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Definitions:

Street Lighting

A service provided, often by local governments, that involves the installation and maintenance of public lighting along streets and in public areas for safety and visibility.

Marginal Benefit

The additional benefit derived from consuming or producing one more unit of a good or service.

Marginal Cost

The cost involved in generating an extra unit of a product or service.

Market Economy

A type of economic system where decisions regarding investment, production, and distribution are based on supply and demand, with minimal government intervention.