Asked by Dominique Harris on May 20, 2024
Verified
The slope of the SML is determined by the:
A) beta of the market.
B) market risk premium.
C) risk-free rate.
D) the required return.
Security Market Line
A line that represents the relationship between the risk of an investment and its expected return, used in the capital asset pricing model.
Market Risk Premium
The additional return expected by investors for taking on the higher risk of investing in the stock market over a risk-free rate.
Beta
A measure of a stock's volatility in comparison to the overall market; a beta above 1 indicates greater volatility than the market.
- Understand the correlation between risk and return as illustrated by the Security Market Line (SML).
Verified Answer
DR
D'Ondre RobinsonMay 20, 2024
Final Answer :
B
Explanation :
The market risk premium determines the slope of the SML. The beta of the market, risk-free rate, and required return all influence the position of the SML, but not its slope.
Learning Objectives
- Understand the correlation between risk and return as illustrated by the Security Market Line (SML).