Which of the following assumptions about the Security Market Line is NOT true?
A) There is a basic reward for waiting: the risk-free rate.
B) The greater the risk, the greater the expected return.
C) There is an inconsistent trade-off between risk and reward at all levels of risk.
D) All of the above statements are true.
Answer: C
Explanation: C) There is a CONSISTENT trade-off between risk and reward at all levels of risk.
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Alice and Tommy have 3 dependent children. Alice earns $125,000 per year. They are taking out insurance on Alice for the next 30 years. Tommy expects to get a 9.25% rate of return on the life insurance payoff
Using the earnings multiple approach calculate how much life insurance they need to take out on Alice. A) $987,440 B) $1,005,011 C) $1,105,447 D) $2,228,553 E) None of the above