The security market line does not
A)indicate the relationship between risk and return
B)relate the market return and beta to a stock's return
C)identify the optimal portfolio for the investor
D)use beta coefficients as a measure of risk

Question

Quizplus · Accepted Answer

The security market line (SML) represents the expected return of a security or portfolio in relation to its risk (beta), but it does not identify the optimal portfolio for an investor. The SML is used to evaluate the expected return for a given risk or to determine if a security is fairly valued. Identifying the optimal portfolio involves considering an investor's specific risk tolerance, investment goals, and other factors, which is not the function of the SML.

The Security Market Line Does Not