The Y-axis intercept of the SML indicates the required return on an individual asset whenever the realized return on an average (b = 1) stock is zero.

Question

Quizplus · Accepted Answer

The Y-axis intercept of the Security Market Line (SML) represents the risk-free rate, which is the return expected from an asset with zero market risk, not the required return on an individual asset when the realized return on an average stock is zero.

The Y-Axis Intercept of the SML Indicates the Required Return