For investments in developed economies, the security market line is still the most popular method for identifying equity required returns.

Question

Quizplus · Accepted Answer

The security market line (SML) is still widely used as a tool for identifying equity required returns for investments in developed economies. It is based on the principle that the expected return of a security should be proportional to its systematic risk, measured by its beta coefficient. By plotting the expected return and beta of each security on a graph, investors can determine whether a security is undervalued or overvalued relative to its expected return.

For Investments in Developed Economies, the Security Market Line Is