Considering the information below, which security would plot above the Security Market Line? If the simple CAPM is valid, which of the following situations is possible and why?

ASSIGNMENT

1. Considering the information below, which security would plot above the Security Market Line (SML)?

Security CAPM-predicted return Investor’s expected return

A 15% 13%

B 15% 15%

C 15% 17%

Group of answer choices

Security C

Security B

Security A

2. If the simple CAPM is valid, which of the following situations is possible and why? Consider each situation independently

Situation 1:

Portfolio Expected Return Beta

A 30% 1.6

B 40% 1.3

Situation 2:

Portfolio Expected Return Standard Deviation

A 20% 30%

B 25% 15%

3. Which of the following types of risk is diversifiable? Select all that apply Group of answer choices

An armed conflict between two countries

A strike by workers at a factory

Failure by a company’s new product launch

A shift in monetary policy