The security market line can be used to determine the expected return on a security based on the:
A)market rate of return
B)slope of the line
C)systematic risk of that security
D)risk premium

Question

Quizplus · Accepted Answer

The security market line (SML) is used to determine the expected return on a security based on its systematic risk, or beta. The slope of the SML represents the market risk premium (the difference between the market rate of return and the risk-free rate). While the market rate of return and risk premium play a role in the SML, the primary factor is the systematic risk of the security.

The Security Market Line Can Be Used to Determine the Expected