Which of the following statements is most correct?
A)the security market line graphically shows the expected return and systematic risk relationship.
B)unsystematic risk is the major determinant of returns for individual assets.
C)assets that have greater systematic risk than the market have betas smaller greater than 01.0.
D)all of the above statements are correct.

Question

Quizplus · Accepted Answer

The security market line (SML) graphically shows the relationship between expected return and systematic risk, as determined by beta.

Option B is incorrect because unsystematic risk is specific to individual assets and does not affect the market as a whole. It is systematic risk that is the major determinant of returns for individual assets.

Option C is also incorrect because assets that have greater systematic risk than the market have betas greater than 1.0, not smaller than 1.0.

Which of the Following Statements Is Most Correct