Which of the following is true about the security market line (SML) derived from the APT?
A) The SML has a downward slope.
B) The SML for the APT shows expected return in relation to portfolio standard deviation.
C) The SML for the APT has an intercept equal to the expected return on the market portfolio.
D) The benchmark portfolio for the SML may be any well-diversified portfolio.
E) The SML is not relevant for the APT.

Question

Quizplus · Accepted Answer

The Security Market Line (SML) derived from the Arbitrage Pricing Theory (APT) can indeed use any well-diversified portfolio as a benchmark, not just the market portfolio. This flexibility is a key feature of the APT approach to asset pricing.

Which of the Following Is True About the Security Market