Which of the following statements is CORRECT? A) If the risk-free rate rises, then the market risk premium must also rise. B) If a company's beta is halved, then its required return will also be halved. C) If a company's beta doubles, then its required return will also double. D) The slope of the security market line is equal to the market risk premium, (r_M − r_RF). E) Beta is measured by the slope of the security market line.

Question

Quizplus · Accepted Answer

The slope of the Security Market Line (SML) represents the market risk premium, which is the difference between the expected return on the market portfolio and the risk-free rate. This is consistent with the Capital Asset Pricing Model (CAPM), where the market risk premium is multiplied by a stock's beta to determine the stock's risk premium.

Which of the Following Statements Is CORRECT