Asked by Ajayi Oluwagbemileke on Jul 06, 2024
Verified
The linear relation between an asset's expected return and its beta coefficient is the:
A) Reward to risk ratio.
B) Portfolio weight.
C) Portfolio risk.
D) Security market line.
E) Market risk premium.
Security Market Line
A representation in finance that shows the relationship between risk and return of a market.
Beta Coefficient
A measure of a stock's volatility in relation to the overall market, indicating its level of risk compared to the market average.
Expected Return
The anticipated profit or loss from an investment, considering all possible outcomes and their probabilities.
- Describe the structure and function of the Capital Asset Pricing Model (CAPM), particularly focusing on elements like beta and the risk premium.
Verified Answer
TR
Trinity RennerJul 08, 2024
Final Answer :
D
Explanation :
The Security Market Line (SML) represents the linear relationship between an asset's expected return and its beta coefficient in the Capital Asset Pricing Model (CAPM). This line illustrates how much return an investor should expect for taking on additional risk.
Learning Objectives
- Describe the structure and function of the Capital Asset Pricing Model (CAPM), particularly focusing on elements like beta and the risk premium.