The line that depicts the relationship between the average expected rate of return and the risk level of a ﬁnancial asset is known as the
A) Beta Line.
B) Security Market Line.
C) Risk Premium Line.
D) Risk-Return Line.

Question

Quizplus · Accepted Answer

The Security Market Line (SML) shows the relationship between the expected return and the beta (which measures the asset's systematic risk) of a financial asset, taking into account the risk-free rate and the market risk premium. The SML is a graphical representation of the Capital Asset Pricing Model (CAPM), which states that the expected return of an asset is equal to the risk-free rate plus the asset's beta times the market risk premium. Therefore, the SML is a useful tool for investors to assess the risk-reward trade-off of different asset classes and to make informed investment decisions. The other choices (A, C, and D) are not used to describe the same concept as the SML.

The Line That Depicts the Relationship Between the Average Expected