INVESTMENTS-CONNECT PLUS ACCESS
11th Edition
ISBN: 2810022611546
Author: Bodie
Publisher: MCG
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Chapter 9, Problem 3CP
Summary Introduction
To determine:
Which statement defines security market line
Introduction:
Securities refer to the financial instrument that depicts the ownership position of the investor in the publicly traded company, right to ownership as represented by an option and relationship of creditor with the corporation or governmental body. Therefore, the entity or company that issues the security is called as issuer.
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The security market line depicts:a. A security’s expected return as a function of its systematic risk.b. The market portfolio as the optimal portfolio of risky securities.c. The relationship between a security’s return and the return on an index.d. The complete portfolio as a combination of the market portfolio and the risk-free asset.
The security market line depicts:
a.
Expected return as a function of systematic risk (indicated by beta)
b.
The market portfolio as the optimal portfolio of risky assets
c.
The relationship between a security’s return and the return on the index
d.
Portfolio combinations of the market portfolio and the risk-free asset
e.
Expected return as a function of volatility
The measure of risk for a security held in a diversified portfolio is:a. Specific risk.b. Standard deviation of returns.c. Reinvestment risk.d. Covariance.
Chapter 9 Solutions
INVESTMENTS-CONNECT PLUS ACCESS
Ch. 9 - Prob. 1PSCh. 9 - Prob. 2PSCh. 9 - Prob. 3PSCh. 9 - Prob. 4PSCh. 9 - Prob. 5PSCh. 9 - Prob. 6PSCh. 9 - Prob. 7PSCh. 9 - Prob. 8PSCh. 9 - Prob. 9PSCh. 9 - Prob. 10PS
Ch. 9 - Prob. 11PSCh. 9 - Prob. 12PSCh. 9 - Prob. 13PSCh. 9 - Prob. 14PSCh. 9 - Prob. 15PSCh. 9 - Prob. 16PSCh. 9 - Prob. 17PSCh. 9 - Prob. 18PSCh. 9 - Prob. 19PSCh. 9 - Prob. 20PSCh. 9 - Prob. 21PSCh. 9 - Prob. 22PSCh. 9 - Prob. 23PSCh. 9 - Prob. 24PSCh. 9 - Prob. 1CPCh. 9 - Prob. 2CPCh. 9 - Prob. 3CPCh. 9 - Prob. 4CPCh. 9 - Prob. 5CPCh. 9 - Prob. 6CPCh. 9 - Prob. 7CPCh. 9 - Prob. 8CPCh. 9 - Prob. 9CPCh. 9 - Prob. 10CPCh. 9 - Prob. 11CPCh. 9 - Prob. 12CP
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- The measure of risk for a security held in a diversified portfolio is: Specific risk. Standard deviation of returns. Reinvestment risk. Covariance.arrow_forwardWhich is least likely correct about security valuation?a. The calculated or determined value considers the stream of future cash flows.b. The calculated or determined value equals the market price.c. The calculated or determined value considers the risks involved and the opportunity cost.d. The calculated or determined value allows the investors to evaluate whether a security isovervalued or undervalued.e. All of the abovearrow_forwardThe security market line describes the expected return for O The efficient portfolio O The inefficient portfolio O All portfolios and assets O The efficient and inefficient portfoliosarrow_forward
- Describe how a risk-free hedge portfolio can be created usingstocks and optionsarrow_forwardThe efficient frontier represents: a) The set of investments with the lowest risk b) The set of investments with the highest return c) The set of portfolios offering the highest return for a given level of risk d) The set of portfolios offering the lowest return for a given level of riskarrow_forwardIt measures the sensitivity of the return of a security to changes in the return of a common index taken to be a proxy of the market portfolio. A. alpha B. sharpe index C. treynor index D. Betaarrow_forward
- Which of the following factors is most likely to affect the level of systematic risk in a portfolio? The type of industries represented in the portfolio The number of securities in the portfolio Macroeconomic conditions The geographic location of the securities in the portfolioarrow_forwardExplain the difference between (a) stand-alone risk and (b) risk in a portfolio context. How are they measured or calculated, and are they relevant to investors?arrow_forwardAnswerarrow_forward
- Compare long-term instruments and short-term risks, in terms of the various types of risk to which investors are exposed.arrow_forwardWhat is the Security Market Line (SML)? How isbeta related to a stock’s required rate of return?arrow_forwardDescribe how a risk free hedge portfolio can be created using stock and options.arrow_forward
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