The line plotted to fit observations of a stock's returns versus the market's returns determines the:

Question

Quizplus · Accepted Answer

The line plotted to fit observations of a stock's returns versus the market's returns is known as the security characteristic line (SCL) and its slope is the beta of the stock. Therefore, the answer is B. Options A, C, and D are incorrect as they refer to different concepts. The security market line (SML) is a graphical representation of the capital asset pricing model (CAPM), which shows the expected return of a security based on its beta and the risk-free rate of return. The market risk premium is the difference between the expected return on the market and the risk-free rate. The CAPM is a model that describes the relationship between risk and expected return and is used to calculate the expected return on an asset based on its beta and the market risk premium.

The Line Plotted to Fit Observations of a Stock's Returns