The security market line is a linear function which is graphed by plotting data points based on the relationship between which two of the following variables?
A) Risk-free rate and beta
B) Market rate of return and beta
C) Market rate of return and the risk-free rate
D) Risk-free rate and the market rate of return
E) Expected return and beta

Question

Quizplus · Accepted Answer

The security market line (SML) represents the relationship between the expected return of a security and its beta, which measures the security's risk in relation to the market.

The Security Market Line Is a Linear Function Which Is