Which of the following statements is correct? A)If the risk-free rate rises, then the market risk premium will also rise. B)If a company's beta is halved, then its required return will also be halved. C)If a company's beta doubles, then its required return will also double. D)The slope of the security market line is equal to the market risk premium, (r_M - r_RF).

Question

Quizplus · Accepted Answer

The slope of the security market line (SML) represents the market risk premium, which is the difference between the expected return on the market portfolio and the risk-free rate. This is a fundamental concept in the Capital Asset Pricing Model (CAPM), where the slope (beta) measures the sensitivity of a security's returns to the returns of the market portfolio, and the intercept is the risk-free rate.

Which of the Following Statements Is Correct