Which of the following statements is CORRECT?
A) The slope of the security market line is equal to the market risk premium.
B) Lower beta stocks have higher required returns.
C) A stock's beta indicates its diversifiable risk.
D) Diversifiable risk cannot be completely diversified away.
E) Two securities with the same stand-alone risk must have the same betas.

Question

Quizplus · Accepted Answer

The security market line (SML) represents the expected return of an individual security as a function of the market risk premium (the difference between the expected return on the market as a whole and the risk-free rate) and the security's beta. The slope of the SML is equal to the market risk premium.

Which of the Following Statements Is CORRECT