What is security market line

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Reference no: EM133104139

Question - (a) Suppose you are an owner of a Chilli Sauce factory and you are thinking of retirement. You plan to hire a manager to run the business for you.

(i) You want the manager hired to represent the organization's interests. What theory discusses the conflict between the manager and shareholders? What are type I and type II agency costs in this theory?

(ii) What are the possible solutions to mitigate the conflict between the manager and shareholders?

(b) You are constructing a portfolio. You plan to use Security Market Line (SML) to evaluate undervalued/overvalued assets.

(i) What is Security Market Line (SML)? Explain why all the assets in the market should be on the same SML.

Reference no: EM133104139

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