Non-Negativity Constraints

question 36

Multiple Choice

Non-negativity constraints

• A) require the use of greater-than-or-equal-to constraints.
• B) restrict the decision variables to positive values.
• C) restrict the decision variables to negative values.
• D) do not restrict the sign of the decision variable.

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Definitions:

Security Market Line (SML)

Positively sloped straight line displaying the relationship between expected return and beta.

Arbitrage Pricing Theory (APT)

An equilibrium asset pricing theory that is derived from a factor model by using diversification and arbitrage. It shows that the expected return on any risky asset is a linear combination of various factors.

Arbitrage Pricing Theory (APT)

A financial model that estimates the price of assets based on the relationship between their expected return and macroeconomic factors that influence all assets' returns.

Market Risk Premium

The surplus return an investor aspires to earn by holding onto a market portfolio fraught with risks as compared to safeguarded, risk-free assets.