1. What would you recommend to an investor who is considering an investment that plots below the security market line?
A) Invest; The expected return is high relative to the risk.
B) Don't invest; All stocks below the SML are low-growth stocks.
C) Don't invest; The risk is high relative to the expected return.
D) Invest; All stocks revert to the SML over time.
2. A drilling rig cost $52,300 and has an estimated life of 11 years and a scrap value of $4707. Find the book value at the end of 4 years using the straight-line method. Round to nearest dollar.
$17,307
$47,973
$34,993
$33,282