The security market line (SML) is
A) the line that describes the expected return-beta relationship for well-diversified portfolios only.
B) also called the capital allocation line.
C) the line that is tangent to the efficient frontier of all risky assets.
D) the line that represents the expected return-beta relationship.
E) All of the options.

Question

Quizplus · Accepted Answer

The Security Market Line (SML) represents the expected return-beta relationship, showing the expected return for a given level of risk as measured by beta. It is not limited to well-diversified portfolios only (A is incorrect), it is not the same as the capital allocation line (B is incorrect), and it is not the line that is tangent to the efficient frontier (C is incorrect).

The Security Market Line (SML) Is