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 difference between the security market line and the risk- free rate.
C) the level of the security market line.
D) the slope of the security market line.

Question

Quizplus · Accepted Answer

In the capital asset pricing model, the slope of the security market line represents the general risk preferences of investors in the marketplace. This slope, also known as beta, measures the sensitivity of a security's return to the overall market return. Higher beta securities are considered riskier and thus have a higher required rate of return. Therefore, the slope of the security market line reflects the market's overall risk preferences.

In the Capital Asset Pricing Model, the General Risk Preferences