Which of the following statements is CORRECT?
A) Lower beta stocks have higher required returns.
B) A stock's beta indicates its diversifiable risk.
C) Diversifiable risk cannot be completely diversified away.
D) Two securities with the same stand-alone risk must have the same betas.
E) The slope of the security market line is equal to the market risk premium.

Question

Quizplus · Accepted Answer

The slope of the security market line (SML) represents the market risk premium, which is the additional return expected from holding a risky market portfolio instead of risk-free assets. This is based on the Capital Asset Pricing Model (CAPM), where the market risk premium is the slope of the line that plots the expected return of assets against their betas (systematic risk).

Which of the Following Statements Is CORRECT