The relation between the required rate of return and beta is called the:
A)security market line.
B)capital market line.
C)characteristic line.
D)systematic risk.
E)unsystematic risk.

Question

Quizplus · Accepted Answer

The security market line (SML) represents the linear relationship between the required rate of return on an investment (y-axis) and its systematic risk or beta (x-axis). It shows the minimum return an investor expects to earn for investing in a risky asset, given the level of risk associated with that asset. The SML is a graphical representation of the Capital Asset Pricing Model (CAPM), which is used to determine the appropriate required rate of return for a given level of risk. The other options (B, C, D, and E) are related to finance and investments but do not specifically describe the relationship between the required rate of return and beta.

The Relation Between the Required Rate of Return and Beta