Which of the following is correct regarding the SML?
A)The greater the marginal investor's risk aversion, the steeper the SML.
B)The greater the marginal investor's risk aversion, the flatter the SML.
C)The greater the marginal investor's risk aversion, the more negative the SML slope.
D)The lower the marginal investor's risk aversion, the steeper the SML.

Question

Quizplus · Accepted Answer

The Security Market Line (SML) represents the expected return of a security or portfolio in relation to its beta with the market. The slope of the SML is determined by the market price of risk, which increases with the marginal investor's risk aversion. Therefore, a greater risk aversion leads to a steeper SML, as investors require higher returns for taking on additional risk.

Which of the Following Is Correct Regarding the SML