The security market line is a graph of the expected return of a stock as a function of systematic risk (beta).

Question

Quizplus · Accepted Answer

The security market line is a graph that plots the expected return of a stock or portfolio against the market risk premium, which is the difference between the expected return on the market and the risk-free rate of return. The slope of the security market line is the market risk premium, and the y-intercept is the risk-free rate of return. The systematic risk or beta of the stock or portfolio is represented on the x-axis. Therefore, option A is correct.

The Security Market Line Is a Graph of the Expected