The Security Market Line depicts the relationship between a security's
A)expected return and market beta.
B)expected return and total risk.
C)price and market beta.
D)price and standard deviation.

Question

Quizplus · Accepted Answer

The Security Market Line (SML) is a graphical representation of the Capital Asset Pricing Model (CAPM) which shows the relationship between a security's expected return and its market beta. The expected return is plotted on the y-axis and the market beta is plotted on the x-axis. The slope of the SML represents the market risk premium which measures the additional return that investors demand for taking on the extra risk of investing in the stock market. The SML is a useful tool for investors to determine whether a stock is undervalued or overvalued based on its expected return and market beta. The Security Market Line (SML) shows the relationship between a security's expected return and market beta. Market beta is a measure of the security's systematic risk, which cannot be diversified away, and is a significant determinant of the security's expected return. The SML is used to determine whether a security is fairly valued or not, based on its expected return and market beta.

The Security Market Line Depicts the Relationship Between a Security's