Which one of the following about the Security Market Line (SML) is TRUE?

Select one:

a.X-axis represents the systematic risk.

b.According to the SML, all risky securities should be priced according to standard deviation.

c.An asset locating above the SML is overvalued.

d.An asset locating below the SML is undervalued.

Clear my choice

Question32

Which one of the following is FALSE?

Select one:

a.For an upward-sloping yield curve, long-term inflation premium is greater than short-term inflation premium.

b.An upward-sloping yield curve is typically observed during economy expansion.

c.For a downward-sloping yield curve, interest rate risk premium decreases with time to maturity.

d.Interest rate risk premium makes an upward-sloping yield curve steeper.

Clear my choice

Question33

You are given two choices of investments, Investment A and Investment B. Both investments have the same future cash flows. Investment A has a discount rate of 7%, and Investment B has a discount rate of 6%. Which of the following is true?

Select one:

a.No comparison can be made - we need to know the cash flows to calculate the present value.

b.The present value of cash flows in Investment A is lower than the present value of cash flows in Investment B.

c.The present value of cash flows in Investment A is equal to the present value of cash flows in Investment B.

d.The present value of cash flows in Investment A is higher than the present value of cash flows in Investment B.