The Security Market Line intercepts the vertical axis at
A) beta = 1.
B) the risk-free rate.
C) the market risk premium.
D) the expected return on asseti equals the expected rate of return on the market portfolio.

Question

Quizplus · Accepted Answer

The Security Market Line (SML) represents the expected return of an asset for a given level of systematic risk, as measured by beta. The intercept of the SML with the vertical axis represents the expected return of a risk-free investment, as there is no systematic risk associated with such an investment. Therefore, the correct answer is B, the risk-free rate.

The Security Market Line Intercepts the Vertical Axis at