Which of the following statements is CORRECT? A) Beta is measured by the slope of the security market line. B) If the risk-free rate rises,then the market risk premium must also rise. C) If a company's beta is halved,then its required return will also be halved. D) If a company's beta doubles,then its required return will also double. E) The slope of the security market line is equal to the market risk premium, (r_M - r_RF).

Question

Quizplus · Accepted Answer

The slope of the security market line (SML) represents the market risk premium, which is the difference between the expected return on the market portfolio and the risk-free rate. This is consistent with the Capital Asset Pricing Model (CAPM), where the slope of the SML is indeed the market risk premium, reflecting the additional return expected from holding a risky market portfolio over a risk-free asset.

Which of the Following Statements Is CORRECT