A stock has a beta of 1.4 and an expected return of 16%. The risk-free rate is 5%. What is the slope of the Security Market Line?
A) 7.86%
B) 7.98%
C) 8.23%
D) 8.67%
E) 8.98%

Question

Quizplus · Accepted Answer

The slope of the Security Market Line (SML) is calculated as (Expected Return - Risk-Free Rate) / Beta. In this case, the expected return is 16%, the risk-free rate is 5%, and the beta is 1.4. Therefore, the slope of the SML is (16% - 5%) / 1.4 = 7.86%.

A Stock Has a Beta of 1