Which of the following is the best deﬁnition of security market line (SML)?
A) A theory showing that the expected return on any risky asset is a linear combination of various factors.
B) A risk that affects at most a small number of assets. Also called unique or asset-speciﬁc risks.
C) A risk that inﬂuences a large number of assets. Also called market risk.
D) Positively sloped straight line displaying the relationship between expected return and beta.
E) Principle stating that spreading an investment across a number of assets eliminates some, but not all, of the risk.

Question

Quizplus · Accepted Answer

The security market line (SML) is a positively sloped straight line that displays the relationship between expected return and beta. It is used to calculate the expected return on an asset considering its systematic risk (market risk) as measured by beta.

Which of the Following Is the Best Deﬁnition of Security