The Security Market Line
A)shows the highest historical return earned by an asset.
B)is calculated by taking the risk-free rate of return and multiplying it by beta.
C)is a minimum standard of return for an asset.
D)usually has a negative slope.

Question

Quizplus · Accepted Answer

The Security Market Line (SML) represents the minimum required rate of return for an asset, based on its level of risk (measured by beta). The SML has a positive slope and shows the expected return for any given level of risk. Therefore, it does not show the highest historical return earned by an asset (A) and is not calculated by simply multiplying the risk-free rate by beta (B). The SML can have a positive or negative intercept, depending on the expected return for a risk-free asset, but it does not usually have a negative slope (D).