The security market line can be used as a graphical presentation of the appropriate discount rate associated with each level of project risk.

Question

Quizplus · Accepted Answer

The security market line (SML) is a graphical representation of the relationship between risk and expected return in the capital asset pricing model (CAPM). It shows the expected return for any given level of risk, as represented by the beta coefficient of a stock or portfolio. Therefore, it can be used to determine the appropriate discount rate for projects based on their level of risk, making option A true.

The Security Market Line Can Be Used as a Graphical