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)all of the above.

Question

Quizplus · Accepted Answer

The Security Market Line (SML) represents the expected return-beta relationship, which shows the expected return of an asset for a given level of systematic risk (beta). The SML is derived from the Capital Asset Pricing Model (CAPM) and is used to determine whether an asset is undervalued or overvalued in relation to its risk level. Therefore, choices A, B, and C are incorrect as they do not accurately describe the SML.