The Security Market Line (SML) is upward-sloping, indicating that the
A) beta of an investment increases as its risk level increases.
B) average expected return on investments decreases as their risk level decreases.
C) average expected return on the risk-free asset increases as its beta increases.
D) average expected return of the market portfolio increases as its beta increases.

Question

Quizplus · Accepted Answer

The SML is upward-sloping because it represents the relationship between the expected return and beta (systematic risk) of an investment. As risk (beta) increases, the expected return also increases, reflecting the risk-return tradeoff.

The Security Market Line (SML) Is Upward-Sloping, Indicating That the