The Security Market Line (SML)is
A) the line that describes the expected return-beta relationship for well-diversified portfolios only.
B) also called the Capital Allocation Line.
C) the line that is tangent to the efficient frontier of all risky assets.
D) the line that represents the expected return-beta relationship.
E) the line that represents the relationship between an individual security's return and the market's return.

Question

Quizplus · Accepted Answer

The Security Market Line (SML) represents the expected return-beta relationship for individual securities. Beta measures the systematic risk of an individual security, and the SML shows us the expected return for a given level of systematic risk (beta). The SML is often used as a benchmark for evaluating the performance of individual securities or portfolios.