1. How does the security market line (SML) differ from the capital market line (CML)?

A. The CML has beta on the x-axis rather than the standard deviation

B. The CML has systematic risk on the x-axis rather than total risk )

C. The SML has total risk on the x-axis rather than systematic risk

D. The SML has systematic risk on the x-axis rather than total risk The SML and the CML are the same

2. The decision of choosing the appropriate types of debt and equity instruments to be used by a firm can also be called:

A. An investing decision

B. A capital budgeting decision)

C. A payout decision

D. A corporate valuation decision

E. A capital structure decision

3. As you add more and more stocks to your portfolio, which terms contribute most to your portfolio's variance?

A. The individual stocks' variance terms

B. The individual stocks' mean terms

C. The individual stocks' variance and the stock's individual covariance terms equally contribute

D. The individual stocks' standard deviation terms

E. The stock's individual covariance terms

4. The agency problem will not be mitigated through:

A. the takeover market

B. well-qualified managers

C. an appointed Board of Directors

D. executive remuneration packages that reward managers when they maximise shareholder wealth

E. monitoring by auditors, bankers, security analysts and credit agencies.