Which of the following statements about the Security Market Line are correct?
I. The intercept point is the risk-free rate of return.
II. The slope of the line is beta.
III. An investor should accept any return located above the SML line.
IV. A beta of 1.0 indicates the risk-free rate of return.
A) I and III only
B) III and IV only
C) II, III and IV only
D) I,II and III only

Question

Quizplus · Accepted Answer

The Security Market Line (SML) represents the expected return of a security based on its beta with the market. The intercept is the risk-free rate (I), and investors should accept returns above the SML as they offer higher returns for the given risk (III). The slope of the SML is the market risk premium, not beta, and a beta of 1.0 indicates the market return, not the risk-free rate.

Which of the Following Statements About the Security Market Line