In the capital asset pricing model, the general risk preferences of investors in the marketplace are reflected by
A) the slope of the security market line.
B) the risk-free rate.
C) the level of the security market line.
D) the difference between the security market line and the risk-free rate.

Question

Quizplus · Accepted Answer

The slope of the security market line reflects the general risk preferences of investors in the marketplace. The steeper the slope, the higher the expected return for assuming higher risk. The flatter the slope, the less return an investor can expect for assuming higher risk. The other options (B, C, and D) are not directly related to reflecting the risk preferences of investors in the marketplace.

In the Capital Asset Pricing Model, the General Risk Preferences