Discuss whether the following statement is true or false:
If there were no riskless assets in the economy,then there would be no security market line.

Question

Quizplus · Accepted Answer

The security market line describes the expected return for all assets and portfolios in the economy.The expected return of an asset or a portfolio,whether efficient or not,can be determined. In a situation,where there is no lending or borrowing of riskfree securities,the security market line will still hold existence.Here,the straight line will be described by any two points.One convenient point is the market portfolio.A second convenient portfolio is where the straight line cuts the vertical axis (where Beta equals zero). 11ea83f1_e7f0_3ef1_b5a5_4b4bbfb48e5a_TB6527_00 The equation of the straight line will be 11ea83f1_e7f0_3ef2_b5a5_b3438c6ad530_TB6527_11 and will hold for a portfolio with zero Beta. 11ea83f1_e7f0_3ef3_b5a5_ddeeed49938d_TB6527_11 will be the expected return on this portfolio.Solving the equation further,we will get the final equation for the expected return on any security or portfolio as 11ea83f1_e7f0_3ef4_b5a5_f573fcb65f59_TB6527_11 .

Discuss Whether the Following Statement Is True or False