The security market line (SML) is a. the line that represents the expected return-beta relationship. b. also called the capital allocation line. C. the line that is tangent to the efficient frontier of all risky assets. O d. the line that represents the expected return-standard deviation relationship. e. the line that describes the expected return-beta relationship for well-diversified portfolios only.
The security market line (SML) is a. the line that represents the expected return-beta relationship. b. also called the capital allocation line. C. the line that is tangent to the efficient frontier of all risky assets. O d. the line that represents the expected return-standard deviation relationship. e. the line that describes the expected return-beta relationship for well-diversified portfolios only.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:QUESTION 2
The security market line (SML) is
a. the line that represents the expected return-beta relationship.
b.
also called the capital allocation line.
C.
the line that is tangent to the efficient frontier of all risky assets.
d. the line that represents the expected return-standard deviation relationship.
e. the line that describes the expected return-beta relationship for well-diversified portfolios only.
Expert Solution
Step 1: Introduction - Security market line(SML)
Security market line:
Security market line (SML) represents capitalassets pricing model (CAPM). It is derived from the capital asset pricing model (CAPM), which states that the expected return of an investment is directly proportional to its beta, a measure of systematic risk. It helps investors evaluate whether an investment is offering an appropriate expected return given its level of risk. The SML also provides insights into the pricing of individual securities and portfolios.
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