In the capital asset pricing model, the general risk preferences of investors in the marketplace are reflected by
A) the risk-free rate.
B) the level of the security market line.
C) the slope of the security market line.
D) the difference between the security market line and the risk-free rate.

Question

Quizplus · Accepted Answer

The slope of the security market line (SML) is determined by the market's general risk preferences. The SML represents the expected return for a given level of systematic risk or beta. The steeper the slope, the higher the expected return for a given level of risk, indicating that investors are willing to accept more risk in the market. Conversely, a flatter slope would indicate a lower expected return for a given level of risk, indicating a more risk-averse market. Therefore, choice C is the best answer.

In the Capital Asset Pricing Model, the General Risk Preferences