Altria Group Inc.(ticker: MO on NYSE)is an American manufacturer of tobacco products.Selected Financial information for Altria is provided in the table below.What is the expected return on shares of Altria using the SML?

Question

Quizplus · Accepted Answer

From the text we know that the equation for the Security Market Line, and the expected return on any security in capital market equilibrium, is: E(k_i) = k_F + β_i[E(k_M) - k_F] E(k_i) = 0.05 + 0.5(0.10 - 0.05) E(k_i) = 0.05 + 0.5(0.05) E(k_i) = 0.05 + 0.025 = 0.075 or 7.5%