The 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 of the SML is determined by the market risk premium, which is not directly influenced by a manager's actions. The SML represents the relationship between the expected return of an investment and its beta (systematic risk), where the slope is the market risk premium and the intercept is the risk-free rate, both of which are market-determined factors.

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