The security market line:
A) Is a quadratic function depicting the relationship between risk and return.
B) Has a slope which is equal to the market risk premium.
C) Has an intercept point which is equal to the market rate of return.
D) Has a slope which is equal to the risk-free rate of return.
E) Is a linear function of the relationship between total risk and the market rate of return.

Question

Quizplus · Accepted Answer

The security market line (SML) represents the expected return of a security as a function of its systematic risk (beta). The slope of the SML is equal to the market risk premium, which is the difference between the expected market return and the risk-free rate of return. This slope reflects the extra return expected for taking on additional systematic risk.

The Security Market Line