The expected return on the market is 9% and the risk free rate is 4%.A stock has an expected return of 8% and a beta of 0.8.What is the slope of the SML?
A) 1.00%
B) 4.00%
C) 5.00%
D) 8.00%
E) 9.00%

Question

Quizplus · Accepted Answer

The SML is the graph of the CAPM equation, E(k_F) = k_F + β_i[E(k_M) - k_F]. We know the graph of a straight line is given by the equation y = b + mx, where m is the slope of the line. Using this concept we can see that the slope of the SML is given by the market risk premium 11ea7fdb_fc0d_f57c_a768_a3a4ad0d04a2_TB2902_11 . E(k_M) - k_F = 0.09 - 0.04 = 0.05 or 5%

The Expected Return on the Market Is 9% and the Risk