In the presence of transactions costs,the SML will be
A) A single straight line.
B) A kinked line.
C) A set of lines rather than a single straight line.
D) A curve rather than a single straight line.
E) Impossible to determine.

Question

Quizplus · Accepted Answer

In the presence of transaction costs, the Security Market Line (SML) will not be a single straight line but rather a set of lines, as transaction costs create different required returns for buying and selling, leading to a band of possible SMLs.

In the Presence of Transactions Costs,the SML Will Be