A security market line:
A)explains the co-variance between the returns on the risky asset and the market portfolio.
B)explains the co-variance between the returns on the risky asset and a riskless asset.
C)is a graphical representation of the CAPM.
D)is a graphical representation of the CML.

Question

Quizplus · Accepted Answer

The Security Market Line (SML) is a graphical representation of the Capital Asset Pricing Model (CAPM), which illustrates the relationship between the expected return of an investment and its beta, or systematic risk, relative to the market as a whole.

A Security Market Line