The SML intercepts the vertical axis at [blank].
A)beta = 1
B)the risk-free rate
C)the market risk premium
D)the expected return on assets equals the expected rate of return on the market portfolio

Question

Quizplus · Accepted Answer

The SML (Security Market Line) represents the relationship between expected return and systematic risk (beta). The intercept of the SML represents the expected return on a security when its beta equals zero, which indicates no systematic risk. Since the expected return on a risk-free asset represents the return in the absence of risk, the SML intercepts the vertical axis at the risk-free rate. Therefore, the correct choice is B.

The SML Intercepts the Vertical Axis at [Blank]