Asked by Ailsa Hansen on Jul 07, 2024
Verified
The slope of the security market line is the ________________.
A) Standard deviation.
B) Portfolio weight.
C) Beta coefficient.
D) Risk-free interest rate.
E) Market risk premium.
Security Market Line
A representation in the Capital Asset Pricing Model (CAPM) that displays the risk versus expected return of the market at any given time.
Beta Coefficient
A measure of a stock's volatility or risk relative to the overall market.
Market Risk Premium
The extra return expected by investors for holding a risky market portfolio instead of risk-free securities.
- Understand the concept and calculation of the security market line and its slope.
Verified Answer
KV
Kristian VolekJul 12, 2024
Final Answer :
E
Explanation :
The slope of the security market line (SML) is the market risk premium, which is the difference between the expected return on the market portfolio and the risk-free rate. This slope represents the reward per unit of risk for investing in the market as a whole.
Learning Objectives
- Understand the concept and calculation of the security market line and its slope.