SML relates required returns to firms' systematic (or market) risk The slope and intercept of this line can be influenced by a manager's actions.

Question

Quizplus · Accepted Answer

The slope and intercept of the Security Market Line (SML) are determined by factors such as the risk-free rate, market risk premium, and beta of the stock. These factors are influenced by broader economic conditions and cannot be directly controlled by a manager's actions. However, a manager can adjust the firm's beta by changing its capital structure or business operations, which may affect the stock's position on the SML.

SML Relates Required Returns to Firms' Systematic (Or Market) Risk