Refer to the graph.The intercept of the three Security Market Lines is determined by
A)the risk-free interest rate.
B)the interest rate on financial assets with a beta of 1.
C)the rate on long-term U.S.government bonds.
D)all of these.

Question

Refer to the graph.The intercept of the three Security Market Lines is determined by
A)the risk-free interest rate. 
B)the interest rate on financial assets with a beta of 1. 
C)the rate on long-term U.S.government bonds. 
D)all of these.

Quizplus · Accepted Answer

The intercept of the SML represents the expected return on a risk-free asset. Therefore, the intercept is determined only by the risk-free interest rate and not by the beta or the rate on long-term government bonds.

Refer to the Graph