In the results of the earliest estimations of the security market line by Lintner (1965) and by Miller and Scholes (1972), it was found that the average difference between a stock's return and the risk-free rate was ________ to its nonsystematic risk.
A)positively related
B)negatively related
C)unrelated
D)related in a nonlinear fashion

Question

Quizplus · Accepted Answer

Both Lintner (1965) and Miller and Scholes (1972) found that the average difference between a stock's return and the risk-free rate was positively related to its nonsystematic risk. This means that as the nonsystematic risk of a stock increases, its expected return above the risk-free rate also increases.

In the Results of the Earliest Estimations of the Security