In the capital asset pricing model, the general risk preferences of investors in the marketplace are reflected by ________.
A) the risk-free rate
B) the level of the security market line
C) the slope of the security market line
D) the difference between the beta and the risk-free rate

Question

Quizplus · Accepted Answer

The general risk preferences of investors in the marketplace are reflected by the slope of the security market line. The slope of the security market line represents the market risk premium, which reflects the extra return investors demand for taking on additional risk beyond the risk-free rate. The risk-free rate (A), level of the security market line (B), and the difference between the beta and the risk-free rate (D) are all important components of the capital asset pricing model, but they do not directly reflect the general risk preferences of investors in the marketplace.

In the Capital Asset Pricing Model, the General Risk Preferences