The vertical intercept of the Security Market Line (SML) shows the:

Question

Quizplus · Accepted Answer

The vertical intercept of the SML indicates the risk-free rate of return. This is because the SML represents the expected return for an asset given its beta (systematic risk) relative to the market portfolio, which includes all risky assets. Therefore, the intercept must represent the risk-free rate since an asset with zero systematic risk (beta) would earn the risk-free rate of return.

The Vertical Intercept of the Security Market Line (SML) Shows