The linear relation between an asset's expected return and its beta coefficient is the:
A)reward-to-risk ratio.
B)security market line.
C)portfolio weight.
D)portfolio risk.
E)market risk premium.

Question

Quizplus · Accepted Answer

The linear relation between an asset's expected return and its beta coefficient is graphically represented by the security market line (SML). The SML shows the expected return on an asset in relation to its systematic risk (or beta). The slope of the SML is determined by the market risk premium, which represents the extra return an investor requires for taking on the additional risk of investing in the overall market. Therefore, the correct answer is B, security market line.

The Linear Relation Between an Asset's Expected Return and Its