Which of the following is true about the security market line (SML) derived from the APT?
A)The SML has a downward slope.
B)The SML for the APT shows expected return in relation to portfolio standard deviation.
C)The SML for the APT has an intercept equal to the expected return on the market portfolio.
D)The benchmark portfolio for the SML may be any well-diversified portfolio.

Question

Quizplus · Accepted Answer

The Security Market Line (SML) derived from the Arbitrage Pricing Theory (APT) is not limited to the market portfolio as its benchmark; it can use any well-diversified portfolio. This flexibility is a key feature distinguishing it from the Capital Asset Pricing Model (CAPM) SML, which specifically uses the market portfolio as its benchmark.

Which of the Following Is True About the Security Market