| Question Answer | Which of the following describes a portfolio that plots below the security market line? If it is below the line, you’re not getting enough return given its risk . (risk ratio is too low) | interest gets smaller when principle__ gets bigger |
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Which of the following best describes a portfolio?
The correct answer to the question is c)
Group of assets held by an investor
. While an investment in a risk-free security, a security equally as…
How do you plot the security market line?
The SML can help to determine whether an investment product would offer a favorable expected return compared to its level of risk. The formula for plotting the SML is required
return = risk-free rate of return + beta (market return – risk-free rate of return)
.
Which one of the following is represented by the slope of the security market line?
The market risk premium
is the slope of the security market line.
What does the security market line depict quizlet?
What does the security market line depict? *
Graphical depiction of the capital asset pricing model
. It shows the relationship between expected return and beta.
Which is the best example of systematic risk?
- Tax reforms.
- Interest rate hikes.
- Changes to law.
- Natural disasters.
- Political instability.
- Flight of capital.
- Changes in foreign policy.
- Currency value changes.
Which one of the following is an example of systemic risk?
Examples of systematic risks include: Macroeconomic factors, such as
inflation
, interest rates, currency fluctuations.
How do you read a security market line?
The two-dimensional correlation between expected return and beta can be calculated through
the CAPM formula
and expressed graphically through a security market line, or SML. Any security plotted above the SML is interpreted as undervalued. A security below the line is overvalued.
What is the difference between Capital Market Line and security market line?
One of the differences between CML and SML, is
how the risk factors are measured
. … Unlike the Capital Market Line, the Security Market Line shows the expected returns of individual assets. The CML determines the risk or return for efficient portfolios, and the SML demonstrates the risk or return for individual stocks.
What is the formula for the Capital Market Line?
The slope of the Capital Market Line(CML) is the Sharpe Ratio. You can calculate it by,
Sharpe Ratio = {(Average Investment Rate of Return – Risk-Free Rate)/Standard Deviation of Investment Return
} read more of the market portfolio.
Which one of the following is a risk that applies to most securities?
| Question Answer | Which one of the following is a risk that applies to most securities? C. systematic | A news flash just appeared that caused about a dozen stocks to suddenly drop in value by about 20 percent. What type of risk does this news flash represent? D. unsystematic |
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What risk is Diversifiable?
Specific risk, or diversifiable risk, is
the risk of losing an investment due to company or industry-specific hazard
. Unlike systematic risk, an investor can only mitigate against unsystematic risk through diversification. An investor uses diversification to manage risk by investing in a variety of assets.
Which one of the following is the Y intercept of the security market line?
The y-intercept of this line is
the risk-free rate
(the ROI of an investment with beta value of 0), and the slope is the premium that the market charges for risk.
What is the intercept of the security market line SML )? Quizlet?
What is the intercept of the Security Market Line (SML)? The
Risk-Free Rate
. Two factors determine a stock’s total return?
Which of the following is an example of systematic risk CFA?
The systematic risk of an asset is the relevant risk for constructing portfolios. Examples of systematic risk or market risk include
macroeconomic factors that affect everything
(such as the growth in U.S. GNP, inflation, etc.). … This risk is offset by the unique variability of the other assets in a portfolio.
What is the expected return on the market quizlet?
What is the definition of expected return? It is
the return that an investor expects to earn on a risky asset in the future
. What is the expected return of a portfolio consisting of stocks A and B if the expected return is 10 percent for A and 15 percent for B? Assume you are equally invested in both stocks.
