Asked by Cassie Trucchio on Jul 16, 2024
Verified
The security market line (SML)
A) can be portrayed graphically as the expected return-beta relationship.
B) can be portrayed graphically as the expected return-standard deviation of market-returns relationship.
C) provides a benchmark for evaluation of investment performance.
D) can be portrayed graphically as the expected return-beta relationship and provides a benchmark for evaluation of investment performance.
E) can be portrayed graphically as the expected return-standard deviation of market-returns relationship and provides a benchmark for evaluation of investment performance.
Security Market Line
A representation in financial economics that shows the relation between the risk of an asset and its expected return.
Expected Return-Beta Relationship
A concept in finance that describes the relationship between the expected return of an investment and its beta, indicating the investment's relative risk compared to the market.
- Investigate the viability of investments by identifying underpricing and overpricing with respect to the Security Market Line (SML).
- Gain insight into the fundamental connection between beta and expected return within the context of CAPM.
Verified Answer
WJ
Wesdieunide Jean-LouisJul 19, 2024
Final Answer :
D
Explanation :
The Security Market Line (SML) is indeed graphically represented as the expected return-beta relationship, indicating how much expected return an investment should offer given its risk (beta), and it serves as a benchmark for evaluating investment performance by comparing actual returns to expected returns based on the market risk.
Learning Objectives
- Investigate the viability of investments by identifying underpricing and overpricing with respect to the Security Market Line (SML).
- Gain insight into the fundamental connection between beta and expected return within the context of CAPM.