Which of the following is true about the market portfolio?
A) The expected return of the market portfolio determines the slope of the security market line.
B) It plots below the security market line.
C) It has a beta equal to zero.
D) It consists of all the stocks on the TSX.
E) It has a different reward to risk ratio than the individual assets in the market.

Question

Quizplus · Accepted Answer

The expected return of the market portfolio is indeed a key determinant of the slope of the security market line (SML) in the Capital Asset Pricing Model (CAPM). The SML plots expected return of assets against their beta (risk relative to the market), and the slope of this line is determined by the market risk premium, which is the difference between the expected return of the market portfolio and the risk-free rate.

Which of the Following Is True About the Market Portfolio