Which of the following is a FALSE statement about the security market line (SML)?
A)It is upward sloping, which indicates that investors require a higher expected return on riskier securities.
B)It represents the trade off between total risk and the required rate of return for any risky security.
C)It indicates that the size of the risk premium varies directly with a security's market risk, as measured by beta.
D)It implies that securities with betas less than the market beta of 1.0 are less risky than the "average" stock and will therefore have lower required rates of return.

Question

Quizplus · Accepted Answer

The security market line (SML) represents the trade-off between systematic risk (as measured by beta) and the required rate of return for any risky security, not total risk. Total risk includes both systematic and unsystematic risk, but the SML is concerned only with systematic risk.

Which of the Following Is a FALSE Statement About the Security