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.

Question

Quizplus · Accepted Answer

The linear relation between an asset's expected return and its beta coeﬃcient is represented by the security market line (SML) in the capital asset pricing model (CAPM). The slope of the SML represents the market risk premium, which is the additional return an investor expects to receive for taking on systematic or market risk. Therefore, the correct answer is D) security market line.

The Linear Relation Between an Asset's Expected Return and Its