Which of the following statements is most correct?
A)the security market line graphically shows the expected return and systematic risk relation.
B)unsystematic risk is the major determinant of returns for individual assets.
C)assets that have greater systematic risk than the market have betas smaller than 1.0.
D)all of the above statements are correct.

Question

Quizplus · Accepted Answer

The security market line (SML) graphically shows the expected return and systematic risk relation, as it plots the expected return of an asset against its beta (systematic risk). 
B is incorrect because unsystematic risk, also known as specific or unique risk, can be diversified away and does not have a significant impact on the overall returns of a well-diversified portfolio. 
C is incorrect because assets with greater systematic risk than the market have betas greater than 1.0, while assets with betas smaller than 1.0 have lower systematic risk than the market.

Which of the Following Statements Is Most Correct