In a World Where the CAPM Holds, Which One of the Following

question 41

Multiple Choice

In a world where the CAPM holds, which one of the following is not a true statement regarding the capital market line?

• A) The capital market line always has a positive slope.
• B) The capital market line is also called the security market line.
• C) The capital market line is the best-attainable capital allocation line.
• D) The capital market line is the line from the risk-free rate through the market portfolio.

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Definitions:

Direct Method

A method of reporting the cash flows from operating activities as the difference between the operating cash receipts and the operating cash payments.

ABC

Activity-Based Costing, a method that allocates overhead and indirect costs to related products and services based on their usage.

Support Department Costs

Expenses related to departments that do not directly contribute to the production of goods or services but provide necessary support, such as IT and HR.

Support Activity Costs

Expenses related to functions that assist the core operations of a business, such as human resources or accounting, which do not directly contribute to the production of goods or services.