Asked by Barbara silva on Jul 07, 2024
Verified
The _____ divided by the beta of the market is equal to the slope of the Security Market Line.
A) Total return of the market.
B) Risk-free rate of return.
C) Real return of the market.
D) Market risk premium.
E) Nominal return of the market.
Security Market Line
A graphical representation in the Capital Asset Pricing Model (CAPM) showing the relationship between the expected return of investments and their market risk.
Beta
A measure of a stock's volatility in relation to the overall market, indicating the stock's risk profile.
- Explain the Capital Asset Pricing Model (CAPM) and its components, including beta and risk premium.
Verified Answer
JS
Jitendra SharmaJul 13, 2024
Final Answer :
D
Explanation :
The slope of the Security Market Line (SML) is determined by the market risk premium, which is calculated as the expected return of the market minus the risk-free rate of return.
Learning Objectives
- Explain the Capital Asset Pricing Model (CAPM) and its components, including beta and risk premium.